On Wednesday, the Australian Bureau of Statistics (ABS) released the latest consumer price index (CPI), revealing that inflationary pressures, while slightly easing, are still above the Reserve Bank of Australia's (RBA) target inflationary range. Still, the latest print showed inflation was below the central bank's expectations, strengthening the case for a near-term interest rate pause.
"It's really a line-ball decision," Hobart-based economist Saul Eslake told Australian Broker, adding that it's "almost 50-50" as to whether the RBA will raise rates at its next meeting.
"The numbers are a tad bit better than the RBA had expected, and that might be enough to have them leave the cash rate on hold," the economist explained.
In the 12 months leading up to June, headline CPI increased 3.8%, down from 4% in May, in seasonally-adjusted terms, and below the bank's forecast of 4%. Meanwhile, trimmed mean inflation — which many economists consider a better indicator of inflationary pressures because it strips out goods with volatile price changes — was up 3.6%, unchanged from the year leading up to May.
But economists at ANZ say the numbers will likely result in a pause in monetary policy.
"Today’s softer-than-expected Q2 trimmed mean inflation print of 0.8% [quarter-over-quarter] should see the RBA keep rates on hold at its August meeting," Madeline Dunk, an economist at ANZ, and Adam Boyton, head of Australian economics, wrote in a joint note. "The RBA governor acknowledged the softening in economic activity in a speech yesterday, which, combined with today’s print, should provide the RBA with additional space to see how the economy evolves.
"Our base case is for the RBA to keep rates on hold at 4.35% before easing 50 [basis points] in the second half of 2027," the economists continued. "The RBA is likely to remain alert to ongoing inflation risks, especially given the recent resumption of the conflict in the Middle East and the move higher in oil prices."
Over at Commonwealth Bank of Australia (CBA), economists are forecasting a hold throughout 2026.
"Today's data support our view that the RBA will remain on hold through the rest of 2026," Trent Saunders, senior economist at CBA, wrote in a note. "While underlying inflation remains above target, the softer trimmed mean outcome, limited cost pass-through and slowing domestic activity give the board scope to stay on the sidelines."
The biggest contributor to inflation in the recent print was housing, up 6.8%, compared with a 6.5% increase in the 12 months leading up to May, driven by a 22.4% annual rise in electricity as the Commonwealth and state government electricity rebates ended.
House prices by city had the sharpest increase in Hobart, up 9.8% in the year, followed by an 8% increase in Adelaide and 7.7% in Brisbane. Housing prices were the slowest to rise in Melbourne and Perth, both up 5.7% in the year.
New dwelling prices rose 5.8%, up from 5.6% in the previous print thanks to project home builders raising base prices to pass through higher labour and materials costs over the year. Rental prices were up 3.6% in the year, unchanged from May.
Other large contributors were clothing and footwear, up 5%, year-over-year, and education, which rose 4.7%, annually.
Overall, inflationary pressures varied across the capital cities, with Hobart and Adelaide recording the largest annual price increases, both rising 4.2%. In contrast, Melbourne experienced the smallest increase, with prices up just 3.2% over the year.
The recent CPI print is the latest clue to the RBA's next move on monetary policy. Australia's central bank lifted the official cash rate (OCR) three times in 2026, bringing rates to 4.35%. The bank has repeatedly said it would not consider lower rates until inflation was back within the 2% to 3% range.
The RBA left rates on hold during its June meeting, stating that it needed more time to see how previous interest rate hikes would impact the economy. But RBA Governor Michele Bullock noted that the decision did not "rule out further tightening in monetary policy if that is what is required to get inflation down."
Despite ongoing inflationary pressures, Eslake pointed out that there are some encouraging signs in the data. For example, in the month of June, the CPI was down 0.1%. In addition, new dwelling purchase prices were up 0.4% in June, compared with a rise of 0.7% in April and 0.9% in May, while rent was up 0.3% in June, compared with an increase of 0.4% in May.
"While you don't want to read too much into a single month's figures, that's an encouraging trend," Eslake said. "At least it's not getting worse."
The RBA meets next to discuss monetary policy on the 10 and 11 of August.
