While preferred inflation metric remains slightly up, pressure is piling on Board to lower rates
Cost of living pressures eased further in the June 2025 quarter, with the Consumer Price Index (CPI) rising 0.7%, undershooting market expectations.
Annual inflation growth eased to 2.1%, the lowest since March 2021, with the main contributors to the increase being housing, food, and health costs, according to the Australian Bureau of Statistics.
Electricity prices, meanwhile, jumped 8.1% as government rebates were used up in Perth and Queensland, pushing out-of-pocket costs higher.
It lays the groundwork for the Reserve Bank of Australia (RBA) to resume its interest rate- cycle after pausing in July.
Currently at 3.85%, the cash rate has the potential to drop to 3.6% if the Monetary Policy Board matches market expectations with a 25-basis-point reduction.
The Board surprised almost everyone by pausing in July, while RBA Governor Michele Bullock has since made some hawkish statements.
Commonwealth Bank senior economist warned that a rate cut is “not a done deal” following publication of the Board’s meeting minutes last week.
Allen surmised that the July hold was rooted in caution, with members preferring to wait for the release of quarterly inflation figures before making further moves.
Now that those inflation figures are out – and softer than expected – hopes are undoubtedly at fever pitch, although nothing is set in stone.
Trimmed mean inflation, the RBA’s preferred measure of inflation, came in at 2.7%, higher than 2.5% in the first quarter and slightly above the RBA’s May Statement on Monetary Policy forecast of 2.6%.
Nonetheless, “we see the result as supporting an RBA rate cut of 25bp in August”, said ANZ senior economist Adelaide Timbrell.
Westpac chief economist Luci Ellis said today’s inflation print “removes any awkwardness posed by inflation remaining too high for the RBA’s comfort at the same time that the labour market might be starting to ease again”.
Ellis added: “RBA Governor Bullock understandably downplayed the pick-up in unemployment in the month of June, given the volatility in the data. Further softening in the labour market would sit uncomfortably with a decision to hold the cash rate at restrictive levels when underlying inflation is so close to target.”
