Australian housing finance rises 2% in Q2

Conditions in the Australian housing market warmed in the June quarter, with lending commitments rising by 2% to $87.7bn on a 1.9% lift in underlying loan volumes to 130k, their first increase since the September quarter last year. Increased activity follows the RBA commencing its easing cycle back in February this year, the Board going on to cut rates twice more since - including at yesterday's meeting (see here). Both the owner-occupier and investor segments of the market contributed to the uplift in the quarter. 

Lending commitments saw their fastest rise in the June quarter (2%) since Q3 last year, lifting the total value of lending to its highest level in more than 3 years at $87.7bn. The headline gain was driven by the owner-occupier segment, with lending rising 2.4% in the quarter to $54.7bn - more than rebounding from a 1.8% fall in the prior quarter. Within the segment, lending picked up across upgraders (non-first home buyers) (4.4%) and first home buyers (5.7%), both posting their strongest outcomes in a year. The investor segment played a supporting role seeing commitments rise 1.4% to $32.9bn. This followed declines of 0.1% and 2.6% in the previous two quarters. 

Turning to loan volumes, the total number of mortgages written rose 1.9% in the June quarter to 130k. But this outcome comes after a combined fall of 3.4% over the previous two quarters. At the peak of the cycle in the pandemic, volumes hit a high of 157k in consecutive quarters in mid 2021. Loan growth was driven by the investor segment, up 3.5% to 49.1k, albeit not recovering the declines from Q1 (-3.2%) and Q4 (-4.1%). Owner-occupier approvals have swung from quarter since unwinding from its pandemic highs. In the latest quarter, the segment saw a 0.9% rise in approvals to 80.9k, little changed on 12 months ago (-0.2%). 

Australian Q2 Wage Price Index 0.8%; 3.4%yr

Australian wages growth matched market expectations rising by 0.8% in the June quarter, leaving the annual pace at an unchanged at 3.4%. These outcomes are in line with RBA forecasts and come after yesterday's decision by the Monetary Policy Board to cut the cash rate by 25bps to 3.6%. Despite the RBA lowering its assumption for the rate of productivity growth in its latest forecasts, its concerns over the inflationary impact of wages growth have declined. At the current pace, wages growth remains in the comfort zone for the RBA, consistent with 2-3% inflation. Signs of softening in that have emerged in the labour market only increase that comfort.   

The Wage Price Index (WPI), a key indicator of wage inflation in the Australian labour market, tracks the movement in base wages across a fixed basket of jobs. For the June quarter, the WPI rose by 0.8%, down a tick from its pace in Q1 (0.9%) but in line with expectations going into the report. Annual growth in wages held at 3.4%, cooling noticeably from its peak of 4.2% a little over a year ago. The annual pace aligns with the more recent momentum in the WPI in 3- and 6-month annualised terms of 3.4% and 3.5% respectively. 

The underlying drivers of wages growth went quiet in the June quarter, something of an in-between period coming after new state-based enterprise bargaining agreements (EBAs) boosted wages growth in the March quarter but before the Fair Work Commision's 3.5% increase to the minimum wage and awards takes effect in the September quarter. 

In the private sector, wages growth was 0.8% in the latest quarter compared to 0.9% for the March quarter. The annual pace rose slightly from 3.3% to 3.4%. At the peak, wages growth in the sector was running north of 4% at a 15-year highs. Since late 2023, private sector wages growth has been cooling in a slowing inflationary environment, and as tightness in the labour market has eased.   

Wages growth in the private sector tends to be more responsive to the overall balance of conditions in the labour market than the public sector. Accordingly, the average pay increase in the private sector has slowed from peak of 5.8% in Q3 2023 to 3.9% currently. Meanwhile, just 12% of private sector jobs saw a wage change in the June quarter, with the bulk of annual reviews typically coming in the September quarter.  

Public sector wages growth lifted by 1% for the June quarter off the back of a 1.1% rise in the previous quarter. The slightly faster pace of wages growth in the sector likely reflects the on going effects of the recently implemented EBAs in New South Wales, Victoria, and Western Australia. Some 20% of jobs saw a wage rise this quarter. Annual wages growth is running at 3.7%, up slightly from the March quarter (3.6%) but down from the highs of 4.3% in late 2023. The average pay increase was 3.5%.  

Using the latest industry data, my estimates of wages growth for broad sectors of the labour market remain well down from their recent highs. Wages growth appears to have troughed in business services, but still looks to be easing in the mining and good-related sectors. Household services has seen a recent pick up, but that has been driven by the federal government's wage reforms in the child care and aged care sectors.  

Preview: Wage Price Index Q2

Australia's Wage Price Index (WPI) for the June quarter (Q2) is due to be published by the ABS at 1130 AEST today. This is the main indicator of wage inflation in the domestic labour market and is driven by changes in workplace agreements and awards as well as the overall balance of conditions between supply and demand. Wages growth has been tracking in the 3% range for much of the past year, a pace broadly consistent with the RBA's 2-3% inflation target. New forecasts published by the RBA yesterday essentially left the outlook for wages growth unchanged at 3.3% this year and 2.9% next year.      

June quarter preview: WPI 0.8%q/q, 3.3%Y/Y the expected outcomes  

In today's report, wages growth is expected to come in at 0.8% in the June quarter (range: 0.8-1.0%), which would see the annual pace ease from 3.4% to 3.3%. This is largely expected to be a quieter quarter for wages growth. In the March quarter, new Enterprise Bargaining Agreements (EBAs) came into effect, boosting public sector wages growth in several states. Meanwhile, the Fair Work Commission's ruling of a 3.5% increase to the minimum wage and award rates applies from the start of the next quarter (July 1).   

       

A Recap: Wages growth in the comfort zone 

Wages growth saw a modest uptick to 0.9% in the March quarter from 0.7% in the previous quarter. This lifted annual growth off its cycle lows of 3.2% to 3.4%. Despite the firming in these key outcomes, wages growth remained in the 'comfort zone' for the RBA at a pace consistent with its inflation target - abstracting for weakness in productivity, which the RBA assumes will slowly correct over time.  

The slight boost to wages growth in the March quarter was driven by the private sector, assisted by wage reforms enacted by the federal government in the childcare and aged care industries. On the back of this, private sector wages growth firmed to 0.9%q/q, leaving the annual pace steady at 3.3%Y/Y. In the public sector, new EBAs coming into effect in New South Wales, Victoria and Western Australia saw wages growth lift to 1% in the quarter from 0.7% previously. Annual growth was 3.6%, rebounding after slowing to 2.9% in the December quarter. 

The initiatives in the childcare and aged care industries are based around wages growth rising at a pace in excess of the increases to award rates determined by the Fair Work Commission. The phasing-in of these initiatives will continue to support wages growth (1.4%q/q, 3.8%Y/Y) in health care and social assistance industry over the coming quarters.   

RBA cuts cash rate by 25bps in August

There were no surprises from the RBA at today's meeting as the Monetary Policy Board (MPB) voted unanimously (9-0) to cut the cash rate by 25bps to 3.6%. Compared to last month's surprising and slightly confusing decision to hold (on a 6-3 vote split), the RBA was much clearer and had more conviction today. This was the third cut for the easing cycle - the cash rate now down 75bps since February - with today's cut reflecting increased confidence in the inflation outlook and some softening in the labour market. Based on market pricing for a gradual reduction in the cash rate to 3.1% by mid next year, the August Statement on Monetary Policy showed inflation and the labour market is forecast to remain on track with the RBA's objectives. This was the key message from Governor Bullock today, despite the post-meeting press conference becoming rather sidetracked by a modest downgrade to the RBA's assumption for productivity growth.  

Today's decision was straightforward for the MPB. The decision statement referred to the all-important quarterly inflation data for Q2 - the missing ingredient at the last meeting - noting that core inflation had made progress towards the middle of the 2-3% target band, while highlighting that the labour market had eased a little. Due to those considerations, the MPB concluded that 'a further easing of monetary policy was appropriate'. 

The RBA's outlook for inflation and the labour market - the key forecasts for monetary policy - effectively gave soft validation to markets pricing in at least 50bps of further rate cuts. This was a somewhat dovish surprise today given the RBA's cautious tone on easing. The inflation forecasts were left unchanged. Headline inflation (currently 2.1%) is seen rising to 3% by year-end as temporary rebates unwind, before easing in 2026 (2.9%) and 2027 (2.5%). More importantly, core inflation, currently at 2.7%, is forecast to ease a little further to 2.6% and then hold at this pace around the midpoint of the target band through the projections. In the labour market, the RBA continues to see the unemployment rate ticking up to 4.3% this year but to then maintain that level over 2026 and 2027, an unchanged outlook. 

The one area that has seen some movement is the growth outlook. The RBA cut forecast growth to 1.7% this year (2.1% previously) and 2.1% in 2026 (from 2.2%). At the post-meeting press conference, Governor Bullock explained this came about due to a downgrade in the RBA's assumption for productivity growth, to 0.7% by the end of the forecasts from 1% previously. Governor Bullock said this had no implications for monetary policy because the outlook for inflation and the labour market was consistent with its objectives. The tweak came about due to the judgement that GDP growth had disappointed the RBA's expectations due to an overly high assumption for productivity.

In terms of the outlook more generally, while a worst case scenario in the tariff war has likely been avoided, the MPB reaffirmed the effects on global trade are still expected to weigh on growth and inflation in Australia. Domestically, there is a sense that the RBA sees the recovery as a little fragile, with households cautious and reduced tightness in the labour market. All this vindicates market pricing for additional rate cuts; however, the RBA will likely remain reluctant to speed up its easing cycle from the series of quarterly rate cuts its has delivered so far this year. The next RBA monetary policy meeting is on 29-30 September. 

Preview: RBA August meeting

After being caught offside by the RBA's decision to leave interest rates on hold last month, it is a case of better late than never for markets that go into today's meeting (due 1430 AEST) with little trepidation in predicting a 25bps cut in the cash rate to 3.6%. In fact, forward-looking interest rate markets are of the view that the RBA will cut today and then again in November before winding the easing cycle up with one final cut next year, leaving the cash rate at 3.1%. Markets repriced for additional RBA easing after inflation continued to cool in the June quarter, and as the labour market showed signs of softening. Last time out, Governor Bullock said the decision to hold the cash rate at 3.85% (split 6 votes to 3) was more about 'timing rather than direction'. While the most likely outcome is a 25bps cut today, expect Governor Bullock at the press conference to continue the message that a cautious, gradual approach to rate cuts remains the appropriate way forward.  

The RBA held in July as it placed more weight on receiving the June quarter inflation data than on defying widespread market expectations to cut. With inflation subsequently confirmed to be within the 2-3% target band and easing in line with the RBA's forecasts after printing at 2.1% in headline terms (from 2.4%) and 2.7% on a trimmed mean or core basis (from 2.9%), the light to cut turned green on the report. Another factor supporting a cut today is that the labour market has shown signs of easing. Governor Bullock highlighted some of these signals in her recent speech on 24 July, including reductions in job vacancies and hours worked and less churn in the labour market from people switching jobs voluntarily. This is in addition to the soft employment outcomes reported for May (-1.1k) and June (2.0k), with the unemployment rate lifting to its highest level since late 2021 at 4.3%.  

Alongside today's rates decision, the RBA is set to publish its quarterly Statement on Monetary Policy that includes its latest economic forecasts. Compared to the previous Statement from May, there is less uncertainty around the global trade situation in terms of tariff rates imposed by the US - but the effects on growth and inflation are still very unclear. Domestically, risks around the labour market may have increased somewhat, but the RBA's cautious tone around policy easing suggests its outlook hasn't meaningfully changed. Overall, look for only modest tweaks in the forecasts for Australian inflation (headline CPI: 3% in 2025, 2.9% in 2026; core CPI: 2.6% in 2025, 2.6% in 2026) and growth (2.1% in 2025, 2.2% in 2026).

Macro (Re)view (8/8) | Tech fuels equity rally

The US tech sector led global equity markets higher this week, largely reversing last week's declines. A lack of new catalysts to unsettle markets saw G10 currencies rising against the US dollar, while global bond yields increased a little. Tariff exemptions granted by President Trump to semiconductor producers in exchange for commitments to either re-shore or commencing manufacturing in the US fuelled the equity rally - though details remain vague. Trump's nomination of Stephen Miran - his top economic advisor at the White House - to replace Adriana Kugler on the board of Fed governors following her resignation was another development of note. Miran's nomination, yet to be confirmed by the Senate, did not lead to any notable renewal of the concerns in markets over the politization of Fed policy; the tenure would be short term, running only until the end of January, and with the Senate currently in recess, Miran wouldn't commence until after the September Fed meeting. 

The Bank of England's decision to cut rates by 25bps to 4% this week was expected, albeit on a much finer margin than envisaged. The 5-4 majority for the decision was reached only after a second vote - a first in the Monetary Policy Committee's nearly 30-year history - after the first produced an impasse where 8 members were split down the middle between cutting by 25bps or leaving rates on hold, while the one remaining vote was for a 50bps cut. MPC member Taylor switched his vote in the second ballot from a 50bps to a 25bps cut to deliver the 5-4 majority. This was the 5th reduction of the easing cycle and continued the BoE's sequence of quarterly rate cuts, a pace it continues to describe as 'gradual and careful'. 

In the post-meeting press conference, Governor Bailey said that further easing would depend upon continued disinflationary progress - but the outlook is complicated. The BoE's latest Monetary Policy Report revealed that the inflation forecasts have moved higher (3.8% in 2025, 2.7% in 2026) - and upside risks have increased. On the other hand, the growth outlook is modest (1.2% in 2025, 1.3% in 2026), with downside risks attached. The BoE is easing into an outlook for higher inflation because it doesn't think that will last; however, given the experience of recent years, it is wary of higher headline inflation becoming more of a persistent threat in wage and price settings. Some of those concerns are attenuated by the MPC's view that the economy is operating below capacity, leading to lower inflationary pressures. Governor Bailey said how this 'balance of risks' plays out will direct policy. 

In Australia, despite July's surprise on-hold decision from the RBA, markets fully expect a 25bps rate cut to be announced at next week's meeting. Since the July meeting, the all-important Q2 inflation data confirmed that inflation remains well on track with the RBA's forecasts to hold at the midpoint of the 2-3% target band (see here). Meanwhile, signs of softening in the labour market have also emerged (see here). On the data front this week, household spending was reported to have lifted 0.5% in June, consistent with robust retail sales data. Meanwhile, the trade surplus widened sharply to $5.4bn in June as safe-haven demand for non-monetary gold in volatile market conditions drove exports to their fastest rise (6%) since September 2022.  

Australia's trade surplus widens to $5.4bn in June

Australia's trade surplus came in at $5.4bn in June (vs $3.7bn expected), rebounding from much narrower surpluses in April ($4.2bn) and May ($1.6bn). Exports saw their fastest rise since September 2022, accelerating by 6% in June as non-monetary gold exports surged to record highs on safe-haven demand in a volatile period for financial markets amid uncertainty around the US administration's new tariff regime. Monthly imports slowed with a 3.1% fall after rising by more than 5% over April and May. 

The trade surplus was $5.4bn in June, substantially wider than in May ($1.6bn) and comfortably above its level in April ($4.2bn). Collectively, the surpluses of the previous 2 months were revised down by around $1.3bn. This was a particularly volatile period in global trade following the long-awaited announcement by the Trump administration in early April of the United States' new tariff regime. Trade activity was pulled forward to front run the tariffs, leading to a pullback thereafter while uncertainty over tariff rates and timelines saw the US dollar - historically a source of stability in turbulent times - become the driver of volatility in foreign exchange markets. Looking back on the period, monthly trade surpluses averaged $3.7bn in the quarter, a step down from their average in the March quarter ($4.3bn). 

June exports lifted by 6% to $44.3bn, up 2.6% on 12 months ago. The standout factor in the month was non-monetary gold (36.7%), which hit a new record high ($5.8bn) as volatile trading conditions and economic uncertainty - as well as increased expectations for rate cuts - drove demand for the safe-haven asset. Non-rural goods also contributed with a 3.1% rise in June as coal (17.3%) and iron ore exports (2.3%) advanced.   

Imports weakened in June falling by 3.1% to $39bn but were still up by 3.1% through the 12 months. Capital goods (-9.1%) and consumption goods (-5.5%) saw large declines in the month - though both had risen at pace in April and May. 

For the June quarter, export revenue was $129.2bn, essentially held flat (-0.1%) from its level in the March quarter. Last week, the ABS reported that export prices fell by 4.5% in the quarter, with the uncertainty over global trade and the growth outlook weighing on commodity prices. Export revenue holding flat in this backdrop is a decent outcome. For imports, spending rose by 1.5% in the quarter to $118.1bn. Spending on both capital and consumption goods increased by more than 4% for the period. Import prices were clocked declining modestly by 0.8%q/q, unlikely to have given demand any meaningful support.  

  

Macro (Re)view (1/8) | Payrolls prompts 180

Weak US payrolls data upended markets going into the weekend, with a rethink of Fed policy now firmly on the cards. Conditions had been fairly sedate through President Trump's new tariff announcements and the Federal Reserve's latest meeting, but cracks emerging in the US labour market drove US and European equities to sharp declines. The US dollar gave back gains from earlier in the week alongside significant declines in Treasury yields, led by the front end of the curve as traders moved to price in two Fed rate cuts by year end. Despite advancing on Friday, the AUDUSD ended the week sharply lower on expectations that soft June quarter inflation data will tip the RBA's hand into further rate cuts.    

July's nonfarm payrolls report blindsided both markets and the Fed, indicating that conditions may be much less robust than thought. After the Fed left rates unchanged in the 4.25-4.5% range this week, Chair Powell's message in the post-meeting press conference was that policy was 'well positioned' in a modestly restrictive zone, with inflation a bit above the 2% target and labour market conditions assessed as broadly consistent with its maximum employment objective. The Fed's preferred inflator measure - the core PCE deflator - held a 2.8%yr pace in June. 

July's nonfarm payrolls report - while only one data point at this stage - was a surprise as employment rose by 73k on the month, disappointing expectations for a 106k result and pushing the unemployment rate up from 4.1% to 4.2%. Labour force participation was a tick lower at 62.2%. The major shock however came as gains to payrolls in May and June were reduced by an enormous 258k. This lowers the 3-month average change in payrolls to just 35k - its weakest momentum since the pandemic. Weak payrolls growth comes in a backdrop of slowing economic growth. June quarter GDP growth was better than expected at 0.7%q/q, but that mainly reflects tariff-related volatility. Across the first half of the year, GDP growth was 0.6%, well below its 1.4% pace from the back half of 2024. 

In the euro area, GDP growth was 0.1%q/q in the June quarter, levelling out after growth of 0.6% in the March quarter. Export orders to the US had boosted growth through the March quarter to front run Trump's tariffs on European-made goods. The EU-US trade deal, although resolving some uncertainty for businesses, has slapped a 15% tariff at the US border on imports from Europe. July's inflation estimate came in at an unchanged 2%yr on a headline basis - a touch above the 1.9% consensus - while the core rate held at 2.3%yr. Traders currently see the ECB leaving rates on hold through year-end. It is a different story in the UK, with the Bank of England expected to cut rates by 25bps at next week's meeting. 

Confirmation of ongoing disinflation in Australia effectively paves the way for a reluctant RBA to cut rates at its upcoming meeting on August 11-12. The Monetary Policy Board surprised markets with its decision to hold the cash rate at 3.85% last month, opting to wait for this week's quarterly CPI data rather than moving on the higher frequency but more volatile monthly series. In the key outcomes, both headline (0.7%) and core CPI (0.6%) came in 0.1ppt below market expectations in the June quarter (full review here). Annual inflation is comfortably inside the 2-3% target band, slowing from 2.4% at 2.1% on a headline basis (vs 2.2% expected) and from 2.9% to 2.7% on core (vs 2.7%). Importantly these outcomes are also consistent with the RBA's forecast track, which Governor Bullock has said is a prerequisite to a further reduction in the cash rate. 

A number of effects are swinging headline inflation around, including electricity rebates that are unwinding and volatile fuel and food prices, so the focus for the RBA has been on the core rate. Here, core inflation has been running at an annualised 2.6% pace through the first half of the year - essentially where the RBA wants it to be on the midpoint of the target band. That is backed up by services inflation - a persistent thorn in the RBA's side - easing from 3.7% to a 3-year low of 3.3%. Speaking post the release, RBA Deputy Governor Hauser said the inflation data were welcome but stuck to the 'gradual and cautious' line around lowering rates.  

Also of note in Australia, retail sales turned out a 1.2% splurge from households in the midyear sales in June (vs 0.5%), the strongest rise in spending since March 2022, as the 75-year-old survey came to the end of the line this week on a high (see here). Dwelling approvals also surprised upside posting an 11.9% rise for June, driven by the volatile higher density segment; approvals, however, remain well contained and declined across the quarter (see here). 

Australian dwelling approvals surge 11.9% in June

Australian dwelling approvals posted their largest rise in more than 2 years in June, increasing by almost 12% in the month on the back of a surge in higher-density approvals. Detached or house approvals declined in June (-1.5%), their third fall in the past 4 months. Approvals have lifted substantially over the past year (27.4%) but remain at levels well contained relative to peaks in earlier cycles. Higher interest rates - even with the RBA now winding back policy restriction - is one factor that is still likely weighing on the home building sector. 

Headline dwelling approvals accelerated to their fastest rise since May 2023 with an 11.9% lift in June - well above the 1.8% rise expected. This saw approvals cross 17k for the first time since August 2022, reversing the decline seen over February-April. Driving the surge was higher-density or unit approvals, the volatile segment seeing approvals jump 33.9% to a 30-month high in June (7.8k). By contrast, house approvals were down 1.5% to 9.3k - the level little more than flat on 12 months ago (0.8%). 

Despite June's strong rise, approvals declined by 3.4% across the quarter (47.3k). As with the headline result, higher-density approvals - although surging in June - lost ground in the quarter falling by 11.1% (18.9k). This weakness was partially offset by a 2.5% lift in house approvals (28.4k). This gain for house approvals was driven entirely by a strong result in April (6.4%), with declines later coming through in May (-1.1%) and as reported today in June (-1.5%).  

Remarkably, alteration approvals continue to remain in an uptrend - despite already being well above the levels that were seen through the pandemic when a range of stimulus measures were supporting home renovations. Alongside rising housing prices, tight housing supply and longer construction timeframes due to labour shortages could be relevant factors driving renovations.   

Australian retail sales sign off in style

Australian retail sales surged to their strongest rise since March 2022 after posting a 1.2% lift in June, well above the 0.5% increase expected. Mid-year sales discounting and the release of the Nintendo Switch 2 were key factors that prompted cautious households to loosen the purse strings on discretionary purchases. This was a stellar result for the retail sales series to sign off its 75-year history on, with the ABS now shifting to a broader measure of monthly household spending. 

Retail sales accelerated by 1.2% to $37.9bn in June, up 4.5% on 12 months ago. This was the fastest month-on-month rise for retail sales since March 2022, driven by discretionary sales that rose at a 19-month high (1.4%). In addition, sales growth for May was revised up from 0.2% to 0.5%. Retail sales were up 1% overall across the quarter, with monthly gains averaging 0.6% in the period - its strongest momentum by that measure since September 2022. 

The media release from the ABS reported that mid-year sales boosted spending on big ticket items including furniture (3%) and electronic goods (3.9%), the latter also supported by the launch of the Nintendo Switch 2. Clothing sales also lifted sharply (2%) due to discounting on winter lines.

As noted, retail sales rose by 1% overall for the June quarter. Growth in underlying volumes - sales adjusted for inflation - was 0.3%, a modest rise but above expectations for a 0.1% lift. Retail price growth eased to 0.6% in the June quarter and 2.4% over the year, down from 2.7% previously. This compares to headline inflation that was reported yesterday to be at 2.1% (see here). 

The key driver of volume growth in the quarter was household goods, driven by discounting. Volumes overall rose by 1.5% over the year - a vast improvement on their -0.3% pace 12 months ago. Historically, the volume data has flowed through to household consumption in the National Accounts; however, the ABS ceased this process at the end of 2024.

At the peak of the inflation surge, retail prices were rising by more than 7% year-on-year. A weaker demand backdrop and improved supply chains have been key factors in easing price pressures in the sector.    

At the state level, households in New South Wales came out to play - nominal sales there rising by 1.6% in June, their sharpest rise going all the way back to February 2022. Sales in Victoria and Queensland lifted by 1.2%. Western Australia has shown the most consistent profile for sales growth in 2025, though interestingly sales there slowed to 0.3% in the latest month.  

Australian Q2 CPI 0.7%, 2.1%Y/Y

Quarterly inflation in Australia was softer than expected in the June quarter at 0.7% on a headline basis and 0.6% in trimmed mean or core terms. The RBA defied expectations to cut rates earlier this month to await today's report. A rate cut in August now shapes as a straightforward decision with headline (2.1%Y/Y) and core inflation (2.7%Y/Y) comfortably inside the 2-3% target band and largely on track with the RBA's forecasts. Market reaction on the report was sharp as pricing for an August cut firmed to a lock, with 2 additional cuts to a year-end cash rate of 3.1% close to fully discounted as well.  

Headline CPI came in at 0.7% in the June quarter, a bit below the 0.8% figure expected and down from 0.9% in the March quarter. In annual terms, headline inflation slowed from 2.4% to 2.1% to be pressing the bottom of the target band. The figure was also in line with the RBA's May forecasts and below the 2.2% figure expected by markets. Softer headline inflation was backed up by encouraging signs in core CPI. 

The trimmed mean measure was 0.6% in the June quarter, below expectations for 0.7%. This saw the annual pace decline from 2.9% to 2.7% (vs 2.7% expected), its slowest since the December quarter of 2021 - but a tick above the RBA's 2.6% forecast.  

Inflation momentum, measured in 6-month annualised terms, has picked up on a headline basis to 3.3%, up sharply from 0.9% at the end of last year. However, that rise has been expected because household rebates on electricity bills have been winding down over the first half of the year. More importantly, core inflation is tracking at 2.6% in 6-month annualised terms, essentially in line with the midpoint of the RBA's target band.  

Moving to the specific dynamics in the June quarter, utilities remained a major driver of inflation adding 0.21ppt to quarterly CPI on the electricity rebate unwind. Durable goods (0.25ppt) and new dwelling costs (0.04ppt) - areas of concern highlighted by the RBA - both pushed up on inflation but fairly modestly. Groceries (0.17ppt) also added to inflation, driven largely by a strong rise in fruit and vegetable prices. At the other end of the scale, declines in fuel prices (-0.17ppt) weighed heavily on inflation in the quarter, as did domestic holiday travel (-0.17ppt) during the off-peak season.     

Another key aspect of today's report is that services inflation has cooled further. In the June quarter, services inflation slowed from 3.7% to 3.3% year-on-year, its slowest pace in 3 years. This has come on the back of an easing in some of the areas of persistent price pressures, including insurance - now at 3.9%Y/Y from a peak above 16%Y/Y a little over 12 months ago - and rents at 4.5%Y/Y, slowing from highs that pressed 8%Y/Y in early 2024. Goods inflation remained low easing from 1.3% to 1.1%Y/Y.