Annual headline inflation has fallen for the third consecutive month to 3.8% in June, taking pressure off a beleaguered RBA to issue a fourth rate hike in 2026.
However, core inflation is not making as much progress and is likely to remain a concern for the RBA.
Today’s ABS data saw trimmed mean inflation clock in at an annual rate of 3.6%, the same result as the month before and slightly up in relation to the quarterly dataset.
Annual change | ||
|---|---|---|
Monthly | Annual | Previous |
Headline | 3.8% | 4.0% |
Trimmed mean | 3.6% | 3.6% |
Quarterly | Annual | Previous |
Headline | 3.9% | 4.0% |
Trimmed mean | 3.6% | 3.5% |
Source: ABS.
The largest contributor to annual inflation in June was housing, which rose 6.8%, driven up by electricity prices (+22.4%), new dwellings (+5.8%) and rents (+3.6%).
Westpac draws a line through its forecasted rate hikes
All big banks now expect the RBA to keep the cash rate on hold at its August Board meeting, after Westpac today changed its cash rate forecast following the CPI results.
Previously, Westpac said it expected two further cash rate hikes in August and September.
The bank’s economic team now expects the RBA to leave rates on hold at 4.35% for the next year, with the next RBA move to be down in August 2027.
Current big four bank cash rate forecasts | |||
|---|---|---|---|
August | Next | Forecast | |
CBA | Hold | Down | 2 x 0.25 cuts in |
Westpac | Hold | Down | 4 x 0.25 cuts |
NAB | Hold | Down | 2 x 0.25 cuts |
ANZ | Hold | Down | 2 x 0.25 cuts |
RBA less certain the next move will be down, not up
Today’s drop in headline inflation is good news for Australians, however, the core inflation results were less reassuring.
Trimmed mean inflation recorded at an annual rate of 3.6% – the same increase recorded the month prior. While this is below the current RBA forecast, it continues to present as a problem for the central bank, with this key measure now recording its 12th month at or above 3.0%.
Speaking on Tuesday, the RBA Governor, Michele Bullock, said: “...if it looks like [that] inflation is not coming down then I think the Board have some difficult decisions to make in terms of raising interest rates”. However, the Board does still need to weigh up competing priorities, with the Governor noting that unemployment had risen by “somewhat more than expected”.
While the majority of economists expect the cash rate to remain on hold at the end of the Board’s 10-11 August meeting, borrowers should still prepare for the possibility of a hike, which, for someone with a $600,000 debt owing and 25 years remaining, would represent a $92 increase to their minimum monthly repayments.
Impact of a further 0.25 hike | ||
|---|---|---|
Loan size at | Hike | Cumulative increase |
$600,000 | +$92 | +$364 |
$800,000 | +$122 | +$485 |
$1 million | +$153 | +$606 |
Source: Canstar. Notes: Based on an owner-occupier paying principal and interest with 25 years remaining in Feb 2026 at the RBA avg variable rate. Assumes next rate hike falls in August. Calculations assume banks pass on the hikes the month after. Changes are to minimum repayments.
How Australia’s inflation and cash rate compare around the world
Australia stands out with one of the highest cash rates around the world at 4.35%, following three cash rate hikes this year, while inflation remains relatively elevated compared to economies globally. However, some other economies have shifted back to rate hikes in recent months.
At the same time, unemployment is comparatively low in Australia, highlighting a resilient labour market.
Cash rates, inflation rates | |||||
|---|---|---|---|---|---|
Official | Last | Headline | Core | Unemployment | |
Australia | 4.35% | +0.25%, | 3.8% | 3.6% | 4.4% |
United | 3.50% - | -0.25%, | 3.5% | 2.6% | 4.2% |
United | 3.75% | -0.25%, | 2.6% | 2.6% | 4.9% |
European | 2.40% | +0.25%, | 2.8% | 2.4% | 6.2% |
Canada | 2.25% | -0.25%, | 2.8% | 1.8% | 6.5% |
New | 2.50% | +0.25%, | 4.1% | 2.6% | 5.3% |
Japan | 1.00% | +0.25%, | 1.7% | 1.6% | 2.5% |
Note: ECB refers to the main refinancing rate. New Zealand core inflation is trimmed mean.
The RBA Board is walking a tightrope
Canstar's Data Insights Director, Sally Tindall, says, “Today’s inflation figures are good news for households, especially those buckling under the weight of never-ending price hikes, but the country is by no means out of the woods yet, and borrowers certainly shouldn’t celebrate prematurely.”
“Today’s inflation results were enough to convince Westpac to change its cash rate forecast from a hike to a hold in August, however, stickiness in core inflation could still be enough to push the RBA into issuing a hike.
“The RBA Board is walking a tightrope. On the one hand it has rising unemployment and a complete loss of consumer confidence. On the other it has sticky core inflation and a ticking clock, because the longer the problem persists, the harder it is to shift, with the Governor yesterday noting that “credibility is hard won and easily lost”.
“A pause in August looks like the most probable outcome, however, borrowers should keep a buffer in their budgets just in case.
“Another 0.25 percentage-point hike would add $92 a month to a $600,000 mortgage with 25 years remaining.
“The next Board meeting will be a line-ball decision, not a slam dunk, and borrowers need to be prepared for a hike just in case the ticking clock wins out.”
