Australia's May consumer price index (CPI) is expected to fall 0.3% from the previous month, a result that would still see the annual pace of inflation rise to 4.4%, Westpac said in a Friday report.

Transport is expected to be the primary drag due to lower fuel prices, alongside declines in clothing and footwear, somewhat offset by modest gains in food and housing, according to the report.

Data since the release of the April CPI reading has shown some moderation in cost pressures, and the focus in May will again be on evidence of a second-round impact from elevated oil prices and energy-intensive goods, the bank said.

It added that May is typically a seasonally soft month, and on a seasonally adjusted basis, Westpac expects CPI to rise 0.2%.

Food prices are expected to gain 0.7%, driven mainly by a 2.9% rebound in fruit and vegetables following recent unexpected softness in the previous month. Additionally, an El Niño weather event has now been confirmed, which, combined with higher fertilizer costs, might cause larger output disruptions and create greater upside pressure to food prices this year and in 2027.

Westpac cautioned that the key risk to the May forecast is delayed pass‑through, with second‑round effects potentially being slower than expected due to both policy dampening and lags in how price changes feed into the CPI.