June Quarter CPI In: All Four Banks Now Call a Hold for August — But Inflation Isn't Fixed Yet

The June quarter CPI landed this morning. Headline annual inflation fell to 3.8% — the third consecutive monthly fall, and a full percentage point below the RBA's own forecast of 4.8% for the June quarter peak. The trimmed mean held at 3.6% — unchanged from May, exactly in the "live" scenario band we flagged in our preview article two weeks ago.

The market response was immediate. Market pricing for an August rate hike collapsed to approximately 3%. Westpac — the only major bank still forecasting further hikes — reversed its two-hike call within hours of the release. For the first time in this rate cycle, all four major banks are forecasting a hold on 11 August.

That does not mean the RBA's job is done. The trimmed mean is still 3.6% — well above the 2–3% target. Housing costs rose 6.8% over the year. Electricity prices surged 22.4% as government rebates expired. The August hold is now near-certain. The path to the first rate cut is not.

Why the Headline Fell — and Why That's Not the Whole Story

The headline fall from 4.0% to 3.8% was driven by exactly what the RBA flagged it would look through: the fuel excise halving on 1 April 2026. Transport costs rose just 0.1% in the year to June, down from 3.3% in May, as lower pump prices flowed through the June quarter data. The US-Iran peace deal and gradual Strait of Hormuz normalisation added further downward pressure on oil.

The RBA's May forecast had headline CPI peaking at 4.8% in the June quarter. It came in at 3.8%. Most of that gap is the fuel excise effect — a policy change the Board said it would look through when setting rates. A better-than-forecast headline that is almost entirely fuel-driven will not move the needle on the August decision on its own.

What matters is the trimmed mean — and it held at 3.6%.

The Trimmed Mean — Stuck Above Target

The quarterly trimmed mean came in at 0.8% for the June quarter, holding the annual rate at 3.6%. Bank economists had forecast 0.9% quarterly (3.7% annual) — the actual result was 10 basis points better than consensus, but not by enough to change the picture meaningfully. The trimmed mean has now been at or above 3.5% for two consecutive months.

The stickiness is coming from services and housing, not fuel:

The electricity figure deserves attention. When government electricity rebates were introduced in 2024–25, they suppressed measured inflation. As those rebates have fully expired, electricity has surged back — adding to Housing's contribution at the same time rents are running at approximately 6.5% annual. Housing is now the single biggest driver of elevated trimmed mean inflation, and it is not a category that responds quickly to interest rate moves.

This creates what The Adviser has called the RBA's "challenging conundrum": the trimmed mean is stuck above target, but the primary driver is supply-side housing costs — not excess demand that higher rates would directly address. The Board can hold with reasonable confidence. It cannot yet cut.

Westpac Reverses — All Four Banks Now on Hold

The most significant market development from today's data is Westpac's reversal. Westpac was the sole major bank forecasting further rate hikes — two of them, in August and September, taking the cash rate to 4.85%. Within hours of the release, Westpac abandoned both calls, describing the result as "more benign than anticipated."

Chief Economist Luci Ellis: "We no longer expect rate hikes by the RBA this year." Westpac stops short of ruling out all 2026 hikes entirely, flagging that a November hike remains a tail risk if September quarter CPI re-accelerates sharply. This is not their base case — it is a conditional downside scenario. For now, all four major banks' base cases converge on hold through year-end.

What the RBA Is Likely to Say on August 11

The Board will acknowledge the better-than-forecast headline but will be careful not to declare victory. The trimmed mean at 3.6% remains 60 basis points above the top of the target band. A quarterly trimmed mean of 0.8% annualises to approximately 3.2% — directionally improving but not yet at target.

The August statement will likely retain "not ruling anything in or out" language on further hikes — the Board will not want to signal premature ease. What it will not do is provide any clear signal on the first rate cut. That conversation belongs to 2027.

What This Means for Borrowers

Variable rate borrowers — no change on August 11, but your rate may not be competitive. The August hold means no RBA-driven movement this month. But Finder data shows the average variable rate across existing borrowers sits at approximately 6.92%, while the best available rate from competitive lenders starts from 5.69%. That gap of over 1.2% exists independent of what the RBA does — lenders have been cutting rates for new and refinancing customers throughout the hold period. Getting a rate review now makes sense regardless of August.

Considering fixing? With all four banks calling the cycle peak at 4.35% and cuts expected from mid-2027, two-year fixed rates (currently from approximately 5.6–5.9% at competitive lenders) are priced 20–40 basis points below one-year fixed terms, reflecting bond market expectations of cuts within the fixed period. For borrowers who want certainty through 2026 and into 2027, a two-year fixed warrants consideration — though it means forgoing any variable rate movement if cuts arrive early.

Refinancers — the hold gives you a stable window to act. The rate gap between loyal and active borrowers is not closing; it is widening as lenders compete for new volume while existing customers sit on older rates. The August decision removes any residual rate uncertainty for the next 10 weeks, making this a good period to review and, if warranted, move.

Sources: ABS, CPI rose 3.8% in the year to June 2026; ABS, Consumer Price Index, Australia, June 2026 (full release); Financial Standard, Mixed inflation data keeps August RBA meeting a 'live' one; savings.com.au, Australia's inflation cools to 3.8% ahead of RBA August decision; The Adviser, RBA faces 'challenging conundrum' for August rate decision; Grafa, Westpac drops rate hike call after softer inflation.