The Bureau of Statistics will publish Australia’s second quarter inflation figures on Wednesday.
A hotter-than-expected number will put pressure on the Reserve Bank to hike interest rates in August.
That could be an underlying inflation figure of more than 3.8%.
Here’s the latest commentary on this from betashares chief economist David Bassanese:
As it stands, the RBA forecast annual trimmed mean inflation to reach 3.8% in the June quarter in the May Statement on Monetary Policy. To be achieved, this would require a 1.0% quarterly gain in trimmed mean inflation, compared with quarterly gains of 0.9% and 0.8% in the December and March quarters respectively.
To my mind, a bounce back in underlying inflation to a 1% quarterly pace should be enough to tip the RBA over the edge and raise rates at the August policy meeting. Indeed, the RBA would have no choice but to conclude that underlying inflation pressures just remain too firm and show little sign of meaningful deceleration.
The current market expectation (according to Bloomberg) is a 0.9% gain in quarterly trimmed mean inflation – which would leave the RBA’s August decision line ball.
My call is that trimmed mean quarterly inflation will hit 1%, reflecting ongoing persistent strength in market service prices – due to firm demand and the passing on of higher labour costs – and ongoing strength in new house prices and residential rents.
There will also be an element of pass through of higher energy costs more broadly through an array of CPI items.
Both new home prices and rents have significant CPI weights of 7.6% and 6.6% respectively.
The lift in the cost of new homes since mid-2025 alone accounts for 60% of the rise in annual trimmed mean inflation from 2.8% in June 2025 to 3.6% in May 2026.
Based on my forecasts of a 1% gain in quarterly trimmed mean inflation, my call is that the RBA will now likely raise rates at the August policy meeting, placing further downward pressure on economic growth and established house prices.