Fin-X Rapid Response July 29th

Both headline and core inflation surprised to the downside in the June quarter, undershooting consensus and the Reserve Bank's own May estimates. Both measures remain above the 2–3% target. But after +0.75% of tightening earlier this year and a clear miss against forecasts, the case for a further rate rise is fading. Odds of a rate hike at some stage throughout the remainder of 2026 fell from over 90% to around 50%.

• Australian headline CPI rose +3.8% yoy in the 12 months to June 2026, down from +4.0% in May and below the +4.0% consensus, according to the ABS.

• On a quarterly basis, the CPI rose +0.6% in the June quarter, below the +0.7% expected and down from +1.4% in the March quarter.

• The trimmed mean measure of underlying inflation edged up to +3.6% yoy from +3.5% in May, but was still below the +3.7% consensus.

• Monthly CPI fell -0.1% in June in both original and seasonally adjusted terms, against a +0.2% expectation.

• Housing remained the largest contributor to annual inflation at +6.8% yoy, up from +6.5% in May. Within housing, electricity surged +22.4% yoy as government rebates continued to wind down.

• New dwellings rose +5.8% yoy, the highest annual rate in almost three years, as builders passed on higher material and labour costs. Rents rose +3.6% yoy, unchanged from May.

• Transport inflation moderated sharply to +0.1% yoy from +3.3% in May, driven by fuel. Automotive fuel fell -10.9% in June, following a -11.9% decline in May.

• Rachael McCririck, ABS head of price statistics, said: "Lower world oil prices as a result of some stabilisation in the Middle East in June contributed to fuel prices falling 10.9 per cent in the month," adding that "the federal government's fuel excise relief measures which contributed to lower Automotive fuel prices in April and May, also remained in place".

• Food and non-alcoholic beverages rose +3.3% yoy, unchanged from May, with meals out and takeaway food (+4.0% yoy) the main driver.

• Recreation and culture rose +3.3% yoy (up from +2.4% in May), with holiday travel and accommodation prices up +4.6% in June due to "more travel to the northern hemisphere with the start of their peak tourist season and higher jet fuel prices". Ms McCririck added.

• Annual goods inflation eased to +3.5% yoy while services inflation rose to +4.0% yoy.

• Tradables inflation eased to +1.5% yoy while non-tradables inflation rose to +4.9% yoy.

• S&P/ASX200 9,035 +1.0%, AUDUSD 0.6946 -0.42%, Aus 2yr 4.49 -8bps, Aus 10yr 4.90% -6bps

Fin-X View

• This was a clear downside miss against both consensus and the RBA's own forecasts. It was a genuine surprise rather than an already-anticipated step-down.

• Part of the undershoot reflects softer-than-modelled pass-through of past hikes and the oil/Middle East shock fading faster than assumed, rather than outright weaker demand.

• The June Board minutes still had staff expecting core to rise further this quarter and the result sits well below the RBA's May Statement on Monetary Policy baseline, which had headline CPI peaking at +4.8% yoy and trimmed mean at +3.8% in Q2. Misses of 1.0% and 0.2% against the Bank's own path make a downward revision to the forecast track in the August SMP (due alongside the 11th August decision) look likely.

• However, the composition matters. Services (+4.0% yoy) continues to outpace goods (+3.5%), and new dwelling costs at a near three-year high of +5.8% yoy are home-grown, non-oil-shock inflation — a sign domestic pressures aren't fully tamed even as the headline undershoots. This print also predates the higher Fair Work award wages that took effect this month.

• Governor Bullock's remark yesterday that inflation had "not lifted as high as feared" came with caveats on the uncertain energy path and the difficulty of gauging earlier hikes, and a reiteration that "some further easing in labour market conditions will likely be required to bring inflation back to target".

• Key watch items into August: the size of the SMP forecast downgrade, any RBA commentary reconciling the May miss, and whether services and new-dwelling strength is judged persistent enough to keep a hike on the agenda later in 2026 — even as an August, or even September, move now looks unlikely.

• Markets now price only a 48% chance of one further hike by February before easing resumes.

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