Westpac scraps double hike call as CPI drops

The strongest contributions to headline inflation came from housing, which climbed 6.8 per cent, food and non‑alcoholic beverages, up 3.3 per cent, and recreation and culture, also up 3.3 per cent.

On a monthly basis, CPI edged down 0.1 per cent in June in both original and seasonally adjusted terms.

Trimmed mean inflation, the RBA’s preferred measure, was 3.6 per cent over the year to June, unchanged from May, yet still above the central bank’s 2–3 per cent target band.

ABS head of price statistics Rachael McCririck said the data showed that, once large individual movements were stripped out, core inflation had effectively plateaued.

Westpac abandons its hawkish path

Westpac’s reaction to the release marked the most significant shift among the majors’ rate outlook.

Having previously pencilled in two additional hikes in August and September, the bank now sees no further increases this year as its base case.

“We no longer expect rate hikes by the RBA this year. Inflation has been more benign than we feared and the RBA forecast,” Westpac chief economist Luci Ellis said.

Ellis noted that while higher energy costs had impacted prices in the early phase of the shock, recent months had not seen the strong second‑round effects Westpac had initially forecast.

“The substantial pass‑through of higher energy costs seen in the early phase of the Middle East conflict has not been followed up in recent months,” she said.

“This is welcome – we took no pleasure in our prior hawkish view on pass‑through, and so monetary policy.”

Yet the bank said that if inflation shot up, the RBA could still consider another move.

“There is still a risk of a hike in November if inflation picks up again in Q3. But that is not our base case,” she said.

“Meanwhile the timing of the eventual unwind of the recent hikes (August 2027 start) has not been shifted by the latest data, but we will continue to assess new information.”

Other majors hold the line at 4.35 per cent

Australia and New Zealand Banking Group (ANZ), National Australia Bank (NAB) and the Commonwealth Bank of Australia (CBA) all responded to the June CPI by reaffirming their expectations that the cash rate will remain at 4.35 per cent through 2026.

“Today’s softer‑than‑expected Q2 trimmed mean inflation print of 0.8 per cent q/q should see the RBA keep rates on hold at its August meeting,” ANZ said.

“Our base case is for the RBA to keep rates on hold at 4.35 per cent before easing 50bp in the second half of 2027. However, the trajectory of the monthly trimmed mean does suggest that there remains the risk of a rate hike in November.”

ANZ also took some comfort from the inflation detail, noting that second‑round price effects appeared limited and that housing‑related cost growth may have peaked.

However, NAB said conditions had already shifted since the quarter ended, with some cost pressures returning even as capacity constraints ease.

“The Q2 data feels a bit more dated than usual. Cost pressures have re-emerged over recent weeks, but at the same time, indicators of domestic capacity pressures have eased a little,” it said.

NAB continues to see geopolitical risks as a key threat to the inflation outlook.

“Ongoing conflict in the Middle East remains a threat to inflation, inflation expectations and hence the policy rate outlook,” the bank noted.

Despite those concerns, NAB expects the RBA to hold the cash rate steady this year before easing from mid‑2027.

For the policy path, CBA viewed the latest numbers as reinforcing an on‑hold stance.

“Overall, today's data support our view that the RBA will remain on hold through the rest of 2026,” the bank said.

Like ANZ, CBA has drawn comfort from the apparent containment of broader price pressures.

It said: “Today's softer result provides some reassurance that higher input costs are not passing through broadly and that inflation may be improving slightly faster than our forecasts.”

[Related: RBA faces ‘challenging conundrum’ for August rate decision]