Inflation Update

Inflation cooled in the June quarter, and it's changed the mood ahead of the Reserve Bank's next move. After three rate rises this year, borrowers finally got a number that leans the right way. That's not the same as an all-clear though, so it's worth understanding what actually happened. Here's what the figures said, why the market has swung around to expecting a hold on 11 August, and what it means for you if you've got a mortgage or you're about to take one on. (This is where things stand as we write. The RBA hasn't handed down its decision yet.)

What the numbers actually said

Headline inflation eased to 3.8% over the year to June, down from 4.0% in May, and it came in softer than most people expected. Prices rose 0.6% for the quarter, and the monthly figure actually went backwards by 0.1%, the second month running it's fallen.

The measure the RBA really watches is the trimmed mean, which strips out the biggest swings to show what underlying inflation is doing. It held steady at 3.6%. That result cuts both ways. It's still sitting above the RBA's 2 to 3% target, so the job isn't finished. But it also landed below what the RBA had forecast for the quarter, and that counts for a lot.

Underneath the headline, the story was mixed. Fuel prices dropped sharply as global oil eased, and that pulled the top-line number down. Housing stayed hot though, up 6.8% over the year, with electricity a big driver as government rebates rolled off. Services inflation even ticked up. So the parts of inflation that come from what's happening here at home are still running warm.

Why the market suddenly expects a hold

Before this data landed, another hike was a real possibility. Afterwards, that possibility all but disappeared. The market's implied odds of an August increase fell from around one in five to just a few per cent, and all four major banks now expect the RBA to leave the cash rate at 4.35% when it meets on 11 August.

If you're on a variable rate, that's genuine relief. The immediate threat of a fourth rise this year has faded a long way off the back of a single inflation print.

Don't pop the champagne just yet

A hold isn't a cut, and it pays to keep that front of mind.

Underlying inflation at 3.6% is still above target, and the stickiness in housing and services is exactly the sort of thing that keeps a central bank cautious. Economists are genuinely divided on what comes next. One survey still has a slim majority expecting at least one more rise before the end of 2026, while others, including some of the big-bank economics teams, now reckon 4.35% is the top and the next move is down whenever it comes.

On cuts, the honest answer is that they're mostly a 2027 story on current forecasts. Some economists don't have the first one pencilled in until the middle of next year. So the realistic base case isn't that rates are about to fall. It's that they've probably stopped climbing for now, and could sit around here for a while.

The wildcards the June data misses

Two things are worth keeping an eye on, because the RBA certainly is.

The first is oil. A fresh flare-up in the Middle East recently pushed crude back above US$100 a barrel. That's a new upside risk to inflation that simply isn't in the June figures, and it's a reminder that this data tells us where inflation was, not where it's going. Where it's going is the bit the RBA has to call.

The second is jobs. Employment rose more strongly than expected in June, and the labour market is holding up well. A firm jobs market gives the RBA room to stay focused on inflation rather than rushing to prop up the economy, which is another reason not to bank on cuts arriving soon.

Put it together and the mood is patience, not celebration.

What it means for your mortgage

Enough about the macro. Here's what it means in practice, keeping in mind this is general information rather than advice, because the right move always comes down to your own situation.

If you're on a variable rate, the pressure of another near-term hike has eased, which is good news. Just plan on the basis that rates are likely to hold around where they are for a while rather than drop soon. Test your budget against today's repayments, not the ones you're hoping for.

If you've been weighing up whether to fix, a hold doesn't answer that for you. Fixed rates have been sitting at or below variable at some lenders lately as the market looks ahead to eventual cuts, which shifts the usual maths. But whether fixing suits you comes down to your cash flow and your plans, not the headline. Either way, it's worth a proper look.

If you haven't checked your rate in a while, a steady cash rate is a good prompt to make sure you're not overpaying no matter what the RBA does. The gap between what long-standing customers pay and what new customers are offered doesn't close on its own. If it's been more than a year, there's a fair chance you're sitting above the sharpest rates going.

And if you're buying, lenders test your borrowing capacity at a rate well above the actual one, so a hold keeps the amount you can borrow roughly steady. No sudden loosening, but no fresh squeeze either.

The date to watch

The RBA hands down its call on 11 August, along with a fresh set of forecasts. Whatever the number, the statement that comes with it, and what the Bank says about where inflation is heading, will tell us as much about the rest of the year as the rate itself. We'll be watching it closely.

Let's make sense of it for you

Rate headlines are one thing. What they mean for your loan is another. If you want to know how the current environment affects your repayments, whether your rate still stacks up, or how to think about fixing versus staying variable, get in touch with the team at Claremont Financial. We'll cut through the noise and give you a straight read on your options.

Disclaimer: This is general information only and does not constitute financial advice. Your situation is unique, so chat with the team at Claremont Financial to get guidance tailored to you.