The Westpac-Melbourne Institute Leading Index fell to a six-month annualised growth rate of -0.36% in June, down from -0.25% in May — the sixth consecutive below-trend reading and the weakest pace since late 2023, when quarterly GDP growth last stalled flat.
Westpac head of Australian macro-forecasting Matthew Hassan (pictured) attributed the softening to two main pressures working through the economy at once: a conflict-related spike in fuel prices earlier in the year, and the Reserve Bank's interest rate rises in February, March, and May. Together, these are now weighing on growth through several channels, according to the Westpac bulletin.
The reversal has been sharp. The index has flipped from a growth rate of +0.36% in December to -0.36% now — a swing of 0.72 percentage points. More than half of that move is linked to a narrowing yield spread, the gap between short- and long-term interest rates, which directly reflects the RBA's rate decisions. Softer dwelling approvals, weaker consumer expectations, and a slight pullback in hours worked have also contributed to the decline.
Most of the recent weakness built up in the first three months of the year, with the underlying index broadly stabilising since then, aided by easing local fuel costs and the RBA's decision to hold rates steady in June.
However, Westpac cautioned both of these supports could turn negative again if conditions in the Middle East continue to deteriorate and inflation remains persistent. That concern is borne out in the numbers so far: the most recent monthly CPI update showed trimmed mean inflation — the RBA's preferred underlying measure — rose to 3.6% in the year to May, up from 3.4% in April, even as headline CPI eased slightly to 4.0%. Both figures remain above the RBA's 2–3% target range.
The Reserve Bank's Monetary Policy Board is next due to meet on 10-11 August. Westpac expects the June quarter CPI update, due 29 July, to show inflation running too high, and is forecasting an additional 25 basis point rate increase from the RBA at the August meeting.
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