Inflation expected to remain stubbornly high
Australia's big four banks expect underlying inflation to stay high in the June quarter, reinforcing expectations that the RBA will remain cautious about easing policy.
- Big four banks expect trimmed mean inflation to rise 0.9% in the June quarter, lifting the annual rate to 3.7%.
- Lower fuel prices are expected to push headline inflation down to 0.7%.
- Housing costs are tipped to remain the key driver of inflation.
- CBA, NAB and ANZ expect the RBA to hold in August.
Economists at CBA, NAB, Westpac and ANZ all forecast trimmed mean inflation to rise 0.9% over the quarter, lifting annual core inflation to 3.7%, above the RBA's 2-3% target band.
Quarterly headline inflation is forecast to ease slightly to 0.7%, from 1.4% in the previous quarter, off the back of excise-driven lower fuel prices.
The ABS is due to release the Consumer Price Index data showing the results in the June quarter on Wednesday.
If realised, trimmed mean inflation would have printed between 0.8% and 1.0% for four consecutive quarters.
Big four June quarter CPI forecasts
Headline (q-o-q/y-o-y) | Trimmed mean (q-o-q/y-o-y) | |
CBA | 0.7% / 4.0% | 0.9% / 3.7% |
NAB | 0.7% / 4.0% | 0.9% / 3.7% |
Westpac | 0.7% / 4.0% | 0.9% / 3.7% |
ANZ | 0.6% / 4.0% | 0.9% / 3.7% |
In its latest Statement on Monetary Policy in May, the RBA forecast June quarter trimmed mean to land at 3.8%, before it gradually eases and returns to the top of the target band by end-2027.
The underlying figures are the Reserve Bank’s preferred measure of inflation as they exclude volatile items such as fuel.
"Fuel prices will be the main drag on headline inflation in June, subtracting 0.3% pts from monthly inflation," CBA economist Trent Saunders said, adding, lower fuel prices will also drag on quarterly headline inflation.
"Despite the easing in transport costs, underlying inflation pressures remain firm and the risks to the inflation outlook continue to be skewed to the upside," Mr Saunders said.
Housing remains the largest concern
Housing continues to be a key source of inflation pressure, with the major banks expecting new dwelling costs to rise between 0.7% and 1.0%, with ANZ expecting growth at the upper end of that range.
See also: Inflation trounces housing as Aussies' top economic worry
New dwelling costs, which include the costs of buying a newly constructed home by owner occupiers, account for around 8% of the CPI basket.
"Higher input costs have been passed through into stronger inflation over the past couple of months… [and] we expect that dynamic to be ongoing," NAB senior economist Taylor Nugent said.
Rents are expected to rise between 0.3% and 0.4% as low vacancy rates continue to push advertised rents higher.
This aligns with recent data showing rental growth recorded its largest quarterly increase.
Economists expect rental inflation to remain firm in the second half of the year amid ongoing supply constraints and changes affecting investor housing.
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"Anecdotal evidence certainly suggests the risk of additional upward pressure on rents in the post Federal Budget taxation regime for investor housing," Mr Nugent said.
Westpac economist Neha Sharma pencilled in rent inflation peaking at 4.0% in October, but said affordability pressures and a softer labour market could put a lid on further acceleration.
Services inflation proving difficult to tame
The major banks broadly agree that despite some categories softening, services inflation remains sticky.
Westpac highlighted restaurant meals and repair costs as areas of continued strength, while NAB expects elevated domestic market services inflation seen in May to persist in June.
"Domestic market services inflation is another source of upside risk, with the strong pass-through of higher operating costs seen in May potentially recurring in June," Ms Sharma said.
CBA also expects market services inflation to remain elevated and further accelerate to 4.0% despite some relief from lower fuel costs.
Three of the big four say RBA to hold in August
Historically, a quarterly trimmed mean outcome of above 1.0% reignites concerns that inflation is becoming entrenched, dousing hopes for rate cuts in the near term.
The big banks also warned of upside risk from possible price increases due to the renewed tensions in the Middle East.
CBA expects trimmed mean inflation to remain outside the target range until mid-2027.
"While the outlook for underlying inflation is still too high, we continue to expect the RBA to remain on hold through the rest of 2026," Mr Saunders said.
NAB's base case remains for the RBA to leave the cash rate unchanged in August, arguing that slowing economic growth should eventually give RBA confidence that inflation will moderate.
Similarly, ANZ expects policymakers to keep rates on hold next month but cautioned persistently strong trimmed mean will keep the RBA on alert.
Of the big four, Westpac is the only one backing an August cash rate hike, though chief economist Luci Ellis said it would ultimately hinge on the June quarter CPI.
See also: Westpac doubles down on August cash rate hike
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