- Australia’s annual inflation rate is expected to slow to 3.2-3.3% in July.
- Lower electricity prices and base effects to drive the decline in headline figures.
- Big four banks forecast trimmed mean inflation of 3.5%.
- The RBA remains concerned about underlying inflation.
The ABS will release its July monthly Consumer Price Index (CPI) indicator on Wednesday, with all four major banks forecasting a decline in annual inflation from June's 3.8% reading.
NAB and Westpac both expect headline figures to slow to 3.3% in the year to July, while CBA and ANZ forecast a sharper fall to 3.2%.
If the lower end of the forecast materialises, it would be the lowest annual rate of headline inflation since August 2025.
While split in the headline reading, the four majors are in agreement that underlying inflation will land at 3.5% in July, easing slightly from the previous month's 3.6%.
Big four July CPI forecasts
Headline (y-o-y) | Trimmed mean (y-o-y) | |
CBA | 3.2% | 3.5% |
NAB | 3.3% | 3.5% |
Westpac | 3.3% | 3.5% |
ANZ | 3.2% | 3.5% |
Lower electricity prices to pull annual headline figures down
Economists expect the decline in the annual inflation rate to be driven mainly by energy-related base effects rather than a broad easing in living costs.
CBA forecasts electricity prices to fall by around 2.6% over the month in July as new regulated market offers take effect across several states.
"The annual reset in regulated and reference Default Market Offer (DMO) prices included sizable reductions in NSW and southeast Queensland, partly offset by higher prices in South Australia," CBA senior economist Trent Saunders said.
The monthly fall, together with a large base effect from July 2025, is expected to cause annual electricity inflation to tumble from 22.4% in June to 5.1% in July.
NAB said energy rebate-related base effects would be a major factor in pushing headline inflation down.
But petrol and travel costs to drive monthly prices higher
Westpac forecasts higher fuel and holiday travel costs will push the monthly outcome of consumer prices higher to 0.8%, offsetting the drop in electricity prices.
The bank expects automotive fuel prices to rise 5.1% over the month after the federal government's temporary fuel excise relief partially unwound from 1 July.
If realised, this will push monthly transport inflation to 2.1%, and 1.1% over the year.
Westpac estimates transport will be one of the largest contributors to July inflation.
NAB similarly expects higher petrol prices to place upward pressure on inflation, estimating fuel prices rose about 6% in July, with further increases in the following month.
"Fuel prices are set for a larger monthly increase in August, which should support a reacceleration in year-ended headline inflation next month," NAB senior economist Taylor Nugent said.
Holiday travel and accommodation costs are also expected to jump 3.2% during the month as Australians travelled during the northern hemisphere summer peak season.
Housing costs, everyday living expenses remain elevated
Inflation may be falling, but many Australians still feel the sting in their wallets.
Housing cost pressures remain elevated, with CBA, ANZ and Westpac expecting rents to rise another 0.3% in July off the back of tight vacancy rates and "subdued additions" to rental supply.
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Cotality reported the national median rent hit a record $705 a week in the June quarter with the annual growth rate picking up to 5.9%.
"We have also seen strong growth in advertised rents over the past year, which will support further increases in the CPI measure," Mr Saunders said.
Domain said many landlords have increased asking rents in light of the recent changes in housing investment policies.
Additionally, property analysts point to weaker investor activity as a factor further constraining the nation's housing supply.
"Even as household demand and labour market conditions soften, supply constraints in the rental market are likely to limit the pace at which rent inflation declines," Mr Saunders added.
New dwelling prices are also expected to increase 0.4%, reflecting ongoing labour shortages and construction capacity constraints.
According to Westpac, Tradelink price change notifications are slowing but remain above average.
"Residential construction producer prices are running at their highest pace since late-2023," Westpac senior economist Justin Smirk said.
"We expect cost increases to continue to support elevated new dwelling inflation for at least the next few months," NAB's Mr Nugent said.
Food inflation is tipped to remain broadly steady, with households expected to continue to face increasing costs at supermarkets and cafes.
Westpac estimates food prices rose 0.4% in July and says meals out and takeaway food continue to record some of the strongest price increases, with annual growth to reach 4.2%.
RBA warns underlying inflation stubbornly persistent
Despite the slowdown in June and the further deceleration expected in July, the Reserve Bank warns the battle against rising prices is far from over.
The RBA's latest minutes released on Tuesday suggest policymakers are not yet convinced inflation has been beaten.
In its August meeting, the RBA Board elected to leave the cash rate unchanged at 4.35%, but several members believed it was "quite possible" inflation risks would eventually require further tightening.
While encouraged by the softer-than-expected June outcome, board members noted underlying inflation remained elevated and reflected ongoing capacity pressures across the economy.
They also highlighted persistent inflation in market services, ongoing labour costs pressures and the risk of higher business costs being passed on to consumers.
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"The minutes read slightly more hawkishly than the statement following the August decision, with more focus on the upside inflation risks and less emphasis on the slowdown in activity," ANZ's Jack Chambers noted.
RBA's forecasts show trimmed mean inflation remaining above the 2-3% target band until mid-2027, only returning to the midpoint late next year.
NAB says the line "if upside risks materialise" added to the final sentence of the minutes suggests that while the base case is increasingly 'hold', the bias is toward another hike if inflation surprises.
"The RBA's preference to tighten only when the case is overwhelming, rather than to act to pre-emptively manage upside risks and inflation expectations, looks to be intact," Mr Nugent said.