Inflation in Australia continued its downward trend in the June quarter. Consumer prices rose at an annual pace of 2.1 per cent, lower than the 2.4 per cent recorded in the March quarter. The Reserve Bank of Australia’s preferred measure of underlying inflation, the trimmed mean, also moved lower between the March and June quarters. The rate fell from 2.9 to 2.7 per cent, matching market expectations and aligning closely with the RBA’s recent forecasts.
Central Bank on Track With Projections
The RBA forecast that the trimmed mean would slip to 2.6 per cent and headline inflation would settle at 2.1 per cent by this stage. These forecasts closely reflect the outcomes in the latest data, reinforcing the central bank’s strategy. The data signals greater confidence for policymakers to shift their approach, especially with recent signs of easing price pressures.
Economists Signal Likely Interest Rate Cuts
Westpac’s chief economist, Luci Ellis, stated the latest figures point to inflation being under control. Ellis noted that the RBA is now likely to cut interest rates at its August meeting. The economist suggested, “Further cuts in November, February 2026 and May 2026 also look increasingly likely.” The RBA board chose to keep rates on hold at its last meeting, seeking further confirmation that inflation was trending as expected. The new data appears to provide the evidence required for a policy shift.
Labour Market Shifts Amid Cooling Inflation
Australia’s national unemployment rate climbed from 4.1 to 4.3 per cent in June. This marks a three-year high, further extending the case for interest rate cuts. RBA governor Michele Bullock later said the rise was consistent with RBA forecasts. Bullock also highlighted that the central bank remains focused on reducing inflation. The interplay between these figures suggests a developing environment where accommodative policy becomes more likely.
Economists Weigh in on RBA’s Dilemma
Ellis clarified the latest inflation data gives the RBA the space to cut rates. “Today’s data 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 said. She explained that 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.”
David Bassanese, chief economist at BetaShares, highlighted a broad-based easing in inflation pressures. “Although this is a touch higher than the Reserve Bank’s May forecast of 2.6 per cent, my view is ‘near enough is good enough’ and an August rate cut now seems a done deal,” said Bassanese. He added that recent caution by RBA governor Bullock was justified, as the quarterly Consumer Price Index provides a more reliable reading than the monthly estimate.
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Drivers of Slower Price Increases
The Australian Bureau of Statistics reported that falling automotive fuel prices contributed significantly to the slowdown in annual headline inflation. Fuel prices declined 10 per cent over the year to June 2025. The average cost of unleaded petrol in the June quarter was $1.77 per litre, 21 cents lower than during the same period last year. Other major contributors to the slower pace included smaller annual price rises for insurance at 3.9 per cent, rents at 4.5 per cent, and new dwellings at 0.7 per cent.
Food and Non-Discretionary Price Trends
Food and non-alcoholic beverages saw annual inflation of around 3 per cent for five consecutive quarters. Fruit and vegetable prices climbed 4.6 per cent in the year to June, down from 6.6 per cent in March. Non-discretionary goods and services rose 0.7 per cent in the quarter and 1.8 per cent annually, with notable increases in fruit and vegetables, electricity at 8.1 per cent, rents, and medical and hospital services. A fall in automotive fuel prices of 3.4 per cent offset some of the rise.
Discretionary Price Changes
Discretionary goods and services increased 0.7 per cent for the quarter and 2.4 per cent for the year. International holiday travel and accommodation, garments, and furniture were the main drivers behind this category’s annual rise. The new data suggests the RBA now stands ready to adjust rates in response to changing inflation dynamics and a softening labour market.
