Headline inflation eases but underlying risks remain
June’s inflation print may provide the Reserve Bank with the opportunity to “wait and see” but underlying price pressures remain.
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Australia’s inflation story improved in June but is still not entirely reassuring. Headline inflation eased to 3.8% over the year to June, down from 4.0% in May. In part, elevated headline inflation over the last few months reflects the expiration of government energy rebates (which has seen electricity prices jump 22.4% over the 12 months to June 2026) and the impact of the conflict in the Middle East on fuel prices.
Looking through the volatility in the headline measure gives a more useful picture of underlying price pressures in the economy, and therefore implications for interest rates. While the Reserve Bank of Australia’s (RBA’s) preferred trimmed mean measure came in below expectations – at 3.6% over the year to the June quarter, compared to the RBA forecast of a 3.8% increase – a closer look at the full set of inflation figures reveals lingering worries.
Key areas of concern include accelerating price growth in the services and non-tradables components of the consumer basket. For the past year, annual price growth of non-tradables has outpaced that of tradables, while service inflation (4.0% over the year to June 2026) outpaced goods inflation (3.5%) in June. These two inflation series are measures of ‘home grown’ or domestic price pressures, abstracting from the influence of imported goods prices. That distinction is particularly relevant at present given the volatility in fuel prices.
Notably, other ‘underlying’ measures of inflation also continued to pick up in June, such as measures of market prices excluding volatile items, and even headline inflation excluding the effects of automotive fuel prices. As the conflict in the Middle East reignites and the Government confirms that the full rate of fuel excise will be reimposed at the bowser from 3 August, fuel prices may not add further downward pressure to inflation in the months ahead.
Together, this leaves the impression that this inflation result was not necessarily the good news that an initial glance at the figures might suggest.
For the RBA, the concern is not just where inflation is coming from, but how long it lasts. The longer inflation remains above target, the greater the risk that businesses operating in supply-constrained markets treat higher costs as persistent and pass them on through higher consumer prices.
The inflation print should therefore be seen as only partly reassuring for policymakers, who are likely to remain cautious. By coming in below forecast, the latest inflation data gives the RBA a chance to wait in August, rather than reason to relax.
The change of another rate hike before the end of the year remains on the table.
This newsletter was distributed on 30th July 2026. For any questions/comments on this week's newsletter, please contact our authors:
This blog was co-authored by Rachel Chapman (Economist, Deloitte Access Economics)
Click on the links below to read our previous Weekly Economic Briefings:
- Beyond recovery: Australia's tourism sector enters a new phase (30 July 2026)
- Housing’s deeper challenge (16 July 2026)
- Deloitte Access Economics' Business Outlook: Oil price retreats, domestic pressures persist (10 July 2026)
- Rates on hold as the RBA balances inflation risks and slowing growth(18 June 2026)
