Inflation continues to trend downward in Australia, signaling another interest rate cut is likely in the cards.
The Australian Bureau of Statistics (ABS) released its latest quarterly consumer price index (CPI) Wednesday for the three months ending June 2025, and found that both the CPI and the annual trimmed mean inflation rates are trending downwards.
CPI inflation fell to 2.1% in the June quarter, easing further from March’s three-year low of 2.4%. Meanwhile, the annual trimmed mean inflation – which measures underlying inflation by stripping out goods with volatile prices changes and what many consider a better indicator of inflationary pressures – fell to 2.7%, down from 2.9% in the last quarter.
The Reserve Bank of Australia (RBA) caught markets off guard earlier this month when it decided to hold the official cash rate (OCR) at 3.85%.
In her address regarding the central bank's decision, RBA governor Michele Bullock said the board had adopted a wait-and-see approach, and would need to see the June quarterly CPI before making any further decisions on monetary policy. However, the governor made it clear that there would be more rate reductions. It wasn't a question of if, but when – when being once inflation consistently remains within the RBA's target range of 2% to 3%.
In addition, Bullock noted that rising global uncertainty – from trade tensions to Middle East unrest – also weighed on the board’s decision.
But Wednesday's inflationary data hints at the direction of interest rates in Australia.
The most significant price increases in the quarter, year-over-year, were in healthcare, education and alcohol and tobacco. Housing rose 1.2% in the June quarter, compared with the same time last year, and up 2% over the year leading up to June 2025.
Meanwhile, annual inflation for services fell to their lowest since June 2022, down to 3.3% in June of this year, compared with 3.7% during the March quarter, thanks to easing prices for rents and insurance. Rents fell to 4.5% during the quarter, down from 7.3% a year ago, while insurance dropped to 3.9%, compared to 14% in June 2024.
"Increases in rent prices have consistently been lower over the past four quarters. There has also been a notable drop in price rises for insurance," the ABS said in a statement. "The easing in annual rental price growth reflects stable vacancy rates and slowing growth in advertised rents across most capital cities."
In addition, prices growth for new dwellings remains subdued with the annual inflation for new dwellings falling to 0.7%, down from 1.4% during the March quarter.
"This is the weakest annual rise since the June 2020 quarter," the ABS said. "Over the past 12 months, project home builders have responded to a subdued new home market by increasing incentives and promotional offers to entice new business, leading to an easing in annual price growth."
By city, all eight of Australia's capital cities had price growth, with Perth leading the pack, up 1.9% in the quarter, year-over-year. Brisbane, Adelaide and Darwin all tied for second, up 0.8% during the quarter.
Falling inflation and interest rate uncertainty come as many Australians continue to grapple with cost-of-living pressures. At the same time, surging property prices and a tightening housing supply are pushing some would-be homeowners out of the market. For brokers, this presents both opportunities and challenges: lower rates could boost borrower confidence and drive increased demand for refinancing and new loans, but competition will likely intensify.
