Australians got some bright economic news this morning. The Australian Bureau of Statistics (ABS) has released the latest inflation figures for the Australian economy today, covering the 12 months to 31 May 2025. And they showed some pleasing numbers.
After spiking following the COVID-19 pandemic in 2020, and exacerbated by the Russian invasion of Ukraine in 2022, inflation finally came back into the Reserve Bank of Australia (RBA)'s 2-3% target band last year.
Today, we learned that inflation is continuing to moderate. According to the ABS, the monthly consumer price index (CPI) came in at an annualised 2.1% over the 12 months to 31 May, well within the RBA's target band. Excluding volatile items and holiday travel, the figure was 2.7%.
Over the 12 months to 30 April, the CPI ran at 2.4%, so this is a significant slowdown. A drastic reduction in fuel prices (down 10% in the 12 months to May) and lower electricity costs (thanks in part to government rebates) offset rises in food and drink costs to help lower the primary inflation figure.
Now, when most Australians hear that inflation is coming down, they probably jump to the conclusion that interest rates will soon follow. Indeed, we've already seen two interest rate cuts in 2025 to date, the most recent coming after the RBA's May meeting.
Well, in some good news for home-owners and lendees, experts at Australia's largest bank think that this latest inflation data will bring forward the next rate cut.
CBA: Lower inflation points to interest rate cuts
As reported by Yahoo! Finance, Commonwealth Bank of Australia (ASX: CBA) analysts have pulled forward their predictions from an August interest rate cut to July. If the RBA cuts by the standard 25 basis points, the cash rate would drop from its current 3.85% to 3.60%.
But that's not all. CBA also expects the RBA to double up the cuts with another reduction in August. If that does happen, it would see the cash rate come down to 3.35%.
Here's some of what Belinda Allen, chief economist at CBA, had to say:
"Based on the data flow, we now expect the RBA to cut the cash rate in July", she said.
Today's monthly CPI print capped off a flow of data that should provide comfort to the RBA that a swifter return of the cash rate to neutral is both manageable and needed. The decision to cut the cash rate in July will still be a close one. We expect there to be a discussion of both leaving the cash rate on hold and cutting by 25 basis points.
It seems investors share CBA's confidence. According to the ASX's 'RBA rate tracker' tool, which uses bond prices to ascertain what fixed income investors are betting on, there is currently an 89% chance priced in that the RBA will deliver a 25-point cut next month.
Perhaps life for homeowners is about to get a little easier.
