Inflation comes in softer than expected

Australia's annual inflation rate eased to 3.8% in the 12 months to June , down from 4% in May and below market expectations of 4%, according to data released today by the Australian Bureau of Statistics (ABS).

It was the softest annual reading since February and adds weight to expectations that the Reserve Bank of Australia (RBA) will leave the cash rate on hold at 4.35% when its Monetary Policy Board meets on 11 August.

The print still sits well above the RBA's 2-3% target band, and the central bank's preferred trimmed mean measure – which strips out volatile price swings – held at 3.6%, unchanged from May and still the highest annual trimmed mean reading since September 2024.

Housing and electricity remain the main pressure points

The ABS attributed most of the annual increase to housing, which rose 6.8%, driven by a 22.4% jump in electricity prices as Commonwealth and state government rebates expired, alongside a 5.8% rise in new dwelling costs from higher labour and materials expenses. Food and non-alcoholic beverages inflation held steady at 3.3%.

Transport provided the clearest sign of relief, easing to a four-month low as automotive fuel prices fell 10.9% in June – the third consecutive monthly decline – which the ABS linked to lower world oil prices amid some stabilisation in the Middle East. ABS head of price statistics Rachael McCririck said underlying inflation was "steady at 3.6 per cent in the 12 months to June 2026", unchanged from May.

On a monthly basis, the CPI fell 0.1% – the second straight monthly decline – defying expectations of a rise.

Banks split on what it means for August

The softer trimmed mean print has reinforced expectations among most of the big four banks that the RBA will hold rates steady next month. ANZ Research's published view ahead of today's data was that policymakers would keep the cash rate on hold through the remainder of 2026, while flagging that persistently firm underlying inflation would keep the central bank alert to the risk of a later move.

Westpac had been the outlier among the majors, with chief economist Luci Ellis previously flagging a possible August hike contingent on the quarterly result. Softer-than-expected underlying inflation appears to have shifted that calculus, with Westpac's economics team now leaning toward no further hikes this year, while still flagging a residual risk of a move in November if price pressures reaccelerate in the September quarter.

The data lands a day after RBA governor Michele Bullock used a speech in Sydney to acknowledge slowing growth while insisting it reflected the bank's own settings working as intended, saying "this is part of the plan". That followed minutes from the RBA's June meeting, which had signalled the board remained willing to lift the cash rate again if inflation failed to moderate.

Bendigo Bank: hold likely, but tightening bias intact

Bendigo Bank chief economist David Robertson (pictured, right) said the softer trimmed mean result sits just below the RBA's May forecast, making an August hike unlikely and matching his firm's view over the past two months.

In comments sent to MPA, Robertson said the RBA had gotten ahead of the curve with its three earlier hikes, adding the bank's outlook remains "rates on hold with a tightening bias."

Robertson cautioned that volatile oil prices and supply-chain uncertainty mean inflation risks haven't disappeared, pointing to knock-on effects on food, groceries and construction costs as ongoing concerns.

He also pushed back on market chatter about rate cuts in 2027: "The market has also been considering rate cuts next year with some forecasters looking at multiple cuts, however our view remains that underlying inflation will be stubborn for all of the new financial year, so another hike, most likely in November 2026 or February 2027, is still a risk and the RBA will need a lot more evidence of moderating inflation before it can think about cuts."

What it means for brokers and borrowers

For mortgage brokers, the print reduces near-term pressure for a fourth rate rise this year, offering borrowers on variable loans some reprieve after three hikes already added to minimum monthly repayments in 2026.

It follows an earlier board decision to hold the cash rate at 4.35%, a pause the majors broadly expect to extend through August. Brokers should still prepare clients for continued volatility: with trimmed mean inflation still running above target and services and housing costs elevated, the RBA has left the door open to a hike later in the year if the September quarter data disappoints.