Australia core inflation misses forecasts at 3.6%, easing RBA pressure

Australian core inflation rose 3.6% in the year to June, below the 3.7% traders expected, reducing pressure on the Reserve Bank to deliver a fourth rate increase this year at its August policy meeting.

"The data reinforce the view that inflation remains sticky, rather than showing a decisive disinflation trend," said Wee Khoon Chong, APAC macro strategist at BNY. "This should support the RBA's hawkish bias, although the data are not strong enough to justify a resumption of rate hikes."

The consumer price index rose 3.8% in the year to the end of June, the Australian Bureau of Statistics said Wednesday, below the 4.0% consensus estimate. Headline inflation slowed to 0.6% in the June quarter from 1.4% in the prior three months. The monthly CPI indicator fell 0.1% in June, bringing the annual rate to 3.8%.

The data is expected to be welcomed by RBA Governor Michele Bullock, who left open the prospect of a further rate increase at a luncheon Tuesday. With inflation still above the central bank's 2% to 3% target band, policymakers are likely to maintain a hawkish bias even as the case for an immediate hike weakens. The RBA has raised rates three times already in 2026 as it sought to contain price pressures that have proven stubbornly persistent.

Housing, food and non-alcoholic beverages were the largest contributors to annual inflation in June, the ABS said. Electricity costs remained a significant driver, rising 22.4% from a year earlier. Lower world oil prices, reflecting some stabilization in the Middle East, helped push fuel prices down 10.9% during the month.

The quarterly trimmed mean CPI, the RBA's preferred measure of underlying inflation, rose 0.8% during the quarter. While still elevated, it fell short of economists' expectations for a 0.9% increase. Annual trimmed mean inflation accelerated slightly to 3.6% from 3.5% but remained below the RBA's own forecast of 3.8%.

Investors pared bets on a rate increase after the release. The Australian dollar weakened against the greenback as traders reassessed the likelihood of tighter policy. The three-year government bond yield fell about 5 basis points, while the S&P/ASX 200 index edged higher as rate-sensitive sectors gained.

The RBA's next policy decision is scheduled for August, and the softer inflation print gives policymakers room to hold the cash rate steady while monitoring incoming data on the labor market and consumer spending. If inflation continues to moderate and underlying price pressures remain contained, expectations for a prolonged pause are likely to strengthen, offering relief to households and businesses facing elevated borrowing costs. However, any renewed spike in energy prices or a sharp depreciation of the Australian dollar could reignite inflation concerns and force the RBA back onto a tightening path.

This article is for informational purposes only and does not constitute investment advice.