Another interest rate hike is starting to look more probable as simmering inflation risks playing on the Reserve Bank governor's mind and consumer prices show few signs of losing steam.
The monthly consumer price index came in at 6.8 per cent, up from 6.3 per cent in the year to March.
There were a few seasonal factors in play pushing up the monthly CPI, which is still a fairly new and volatile series, including the sudden fall in fuel prices this time last year because of the halving of the fuel excise tax.
But the uptick in underlying inflation from 6.5 per cent in May to 6.7 per cent suggests price pressures are still present across the economy.
EY chief economist Cherelle Murphy said inflation was clearly still running too fast, even when accounting for the volatility of the monthly gauge.
"This result will be disappointing for the Reserve Bank and strengthens the case for tighter monetary policy," she said in a note.
The central bank's board will meet next Tuesday for the June cash rate decision.
The inflation data came hot on the heels of an appearance from RBA governor Philip Lowe at a parliamentary committee where he said the risks for inflation were slanted up rather than down.
"Given what we're seeing internationally, I think the risks on inflation are more to the upside and we need to be attentive to this," he told senators on Wednesday.
The governor also fleshed out his thinking behind several of these inflation risks, with sluggish productivity growth among those pressing concerns.
He said wages were not growing too fast to be a problem but unless productivity growth picked up, unit labour costs would end up dangerously high.
In the past three years, there had been no increase in the average output produced per hour worked.
"It's a problem for the country and it's a problem for the inflation outlook as well," he warned.
Rents are also threatening the inflation outlook as the biggest component of the consumer price index.
Dr Lowe said there were two major factors driving rents to eye-watering levels - that people opted for more space during the pandemic and the population was booming as borders reopened.
He said it would take time for new supply to come online to meet the higher demand but high prices would eventually cause people to "economise on housing".
"Kids don't move out of home because the rent is too expensive or you decide to get a flatmate, that's the price mechanism at work."
The governor also took the opportunity to nix concerns the May budget would be inflationary and trigger more interest rates.
He said the budget was broadly neutral and working to reduce inflation in the next financial year.
"The electricity price intervention and saving most of the upgrades of the revenue, I think they’re helpful."
New construction data from the Australian Bureau of Statistics was also released on Wednesday and pointed to strength in engineering construction.
The category was largely responsible for the higher-than-expected 1.8 per cent quarterly lift in construction work done, up from a one per cent gain in the December quarter.
