Economists widely expect RBA to cut rates in August
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More news: The inflation data has many economists convinced an August rate reduction is now on the cards with more to follow.
Reserve Bank chief economist Luci Ellis said the data “removes any awkwardness posed by inflation remaining too high for the RBA’s comfort”.
Ellis is tipping a 25 basis point cut, to 3.6%, next month followed by cuts in November, February and May.
IFM Investors chief economist Alex Joiner said the data shows "enough progress on inflation to allay concerns of the Board that a near term rebound is a material risk" and alongside a softening labour market means an August easing is "likely".
However, he said the RBA will "remain cautious and data dependent, watchful of its dual mandate, and we therefore would only expect one further rate cut this year".
"What will be important for the Bank is less the upside risks to inflation and more any upside risks to the unemployment rate and should the latter emerge the Bank may need to move more quickly," he said.
KPMG chief economist Brendan Rynne agrees the inflation outcome should give the central bank “all the comfort it needs to drop the cash rate”.
“Since the RBA’s last board meeting, it seems the arguments for lowering the cash rate have now materialised more than the arguments put forward to maintain the more restrictive monetary policy settings,” Rynne said.
Oxford Economics Australia’s Sean Langcake also believes the figures “clear the way” for an August cut.
“The last two employment prints have been soft and there are no major red flags in today’s inflation data. Accordingly, we expect to see a cut in August,” he said in a statement.
Deloitte Access Economics partner Stephen Smith is also backing in an August cut. He thinks there will be 50 basis points of easing in 2025 and a further 50 basis points in 2026.
He said monetary policy settings are restricting growth and that this is "hard to justify” amid global volatility and a sluggish domestic economy.
“Just this week we have seen news that indicates Australia is far from out of the woods when it comes to negotiating any kind of trade deal with the United States,” Smith said.
Betashares chief economist David Bassanese is tipping a cut in August, followed by further easing in November and February.
CPI rises 0.7% in June quarter putting rate cut on the table
The news: Inflation increased 2.7% in annual trimmed mean terms over the June quarter, according to the Australian Bureau of Statistics. This is in line with market expectations.
This is down from 2.9% over the same period to the March quarter.
Many economists will see this as putting the case for a rate cut firmly on the table for August.
The numbers: The consumer price index rose 0.7% in the June 2025 quarter in headline terms, up 2.1% annually.
Over the quarter the top contributors to the rise were housing (+1.2%), food and non-alcoholic beverages (+1%) and health (+1.5%). Transport declined 0.7%, reflecting lower global oil prices.
The rise in housing was driven by an 8.1% increase in electricity costs with government rebates winding up.
The context: This is the datapoint economists have been waiting for to finalise their predictions for the Reserve Bank's upcoming 12 August interest rate decision after the shock on-hold call in July. Following that decision, governor Michele Bullock said the quarterly figures, alongside the labour force data, would be the main focus points for the board.
The main focus is the trimmed mean figure, with ANZ previously noting that above 0.8% on this measure would be "a challenge" for the board. AMP indicated that an underlying inflation surprise in annual terms above 2.8% could limit rate cut chances.
What they said: "The CPI rose 0.7% in the June quarter, lower than the 0.9% rise in the March 2025 quarter," said ABS head of prices statistics Michelle Marquardt.
"’Trimmed mean annual inflation was 2.7% to the June quarter, down from 2.9% to the March quarter. Trimmed mean annual inflation remains higher than CPI inflation of 2.1%,’ Marquardt said.
The source: Australian Bureau of Statistics media release
