Inflation in Check: RBA Poised to Ease

Australia’s Consumer Price Index (CPI) rose 0.7% in the June 2025 quarter, easing from the 0.9% increase in March and bringing annual inflation down to 2.1%. 

According to the ABS, this marks the lowest annual inflation rate since March 2021. Core inflation, as measured by the trimmed mean, also slowed—rising just 0.6% in the quarter and 2.7% over the year—slightly below expectations and well within the Reserve Bank of Australia’s (RBA) 2–3% target range. This continued moderation in both headline and core inflation supports the case for a shift in monetary policy stance.

Monetary Policy Implications 

Headline inflation has now reached the lower end while the trimmed mean measure continues to inch closer to the mid-point of RBA’s inflation target range of 2%-3%.

We expect the RBA to find comfort in today's quarterly CPI print and call for the rather delayed 25bps cut at the August meeting. Having said that, the Board would move cautiously for the rest of the year. Governor Michele Bullock has emphasised that the RBA's approach will remain "measured and gradual", particularly as Australia did not hike rates as aggressively during the 2022–23 inflation peak. Softer jobs data, risk of prolonged subdued consumer sentiment and slowing inflation are reinforcing the case for future cuts, but the path forward is expected to be measured.

After August, we expect the RBA to deliver one final 25bps rate cut in November, bringing the cash rate to 3.35% by the end of 2025.

CPI Movers and Shakers

The main contributors to the CPI rise this quarter were Housing (+1.2%), Food and non-alcoholic beverages (+1.0%) and Health (+1.5%) partially offsetting these increases was the drag from Transport (-0.7%). Housing costs rose mainly due to higher electricity prices, as government energy rebates that previously reduced household bills were used up in some states and continued to phase out in others. Despite the uptick in electricity prices, they are still moderate in comparison to a year ago. Food and non-alcoholic beverages increased, driven by higher prices for fruit and vegetables due to seasonal supply reductions. Health costs also rose, mainly because of the annual increase in private health insurance premiums. In contrast, Transport costs fell, reflecting a drop in automotive fuel prices in line with lower global oil prices; fuel is now 10% cheaper than a year earlier.

Inflation outcomes varied notably across Australia's capital cities, reflecting a mix of local cost pressures and one-off factors. Perth recorded the highest annual inflation at 2.7%, largely driven by a surge in electricity prices after government rebates ended. Brisbane followed at 2.5%, also seeing strong increases in power bills and travel costs. In contrast, Darwin and Canberra both posted the lowest annual rises at 1.6%, with modest increases across categories like food, health, and travel, and notable fuel price declines. Sydney and Melbourne remained close to the national core average. Overall, holiday travel and medical services were common inflationary drivers nationwide, but categories like furniture, vegetables, and beverages spiked in specific locations, pointing to more localised trends shaping household budgets.