The next interest rate decision from the Reserve Bank of Australia lands on 11 August, and Wednesday's inflation figures will do a lot to influence it.
The June quarter consumer price index is the final major data release before the board meets, and economists are split on the outcome.
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Where the interest rate debate stands
The cash rate currently sits at 4.35% after three increases across 2026.
The board left rates unchanged in June while it assessed the impact of those earlier moves.
Its language was not especially comforting, noting that headline and underlying inflation are "still too high".
Commonwealth Bank, NAB and ANZ all expect the cash rate to hold through the remainder of 2026, while Westpac continues to forecast another hike.
The Reserve Bank, however, has been careful not to close the door on either outcome.
Its June statement committed the board to doing what is necessary to return inflation to target, "including increasing the cash rate target further if required".
What Wednesday's number needs to show
The most recent monthly reading had annual inflation at 4.0% in the 12 months to May, down from 4.2% in April.
That headline improvement was flattered by the halving of the fuel excise on 1 April.
The underlying picture was considerably less reassuring.
Trimmed mean inflation, the measure the Reserve Bank watches most closely, rose to 3.6% from 3.4%. That is the highest reading since September 2024 and remains well above the 2% to 3% target band.
Services inflation also picked up to 3.7%, while housing costs rose 6.5% over the year.
The Reserve Bank's own baseline forecast has headline inflation peaking at 4.8% in the June quarter before easing as fuel prices decline.
Brent crude topping US$100 a barrel last week makes that assumed decline look a good deal less certain than it did in May.
What an interest rate move means for ASX shares
ASX investors have limited ability to dodge a rate decision, but it is still worthwhile to understand potential exposure.
This is particularly true for investors who have broad exposure to the market through ETFS like the Betashares Australia 200 ETF (ASX: A200), which tracks the largest 200 companies on the ASX, or the Vanguard Australian Shares Index ETF (ASX: VAS), which casts a slightly wider net across the ASX 300.
Both ETFs are heavily weighted towards banks and miners, which respond to rate moves in opposite directions. Higher rates typically support bank net interest margins while pressuring the valuations placed on long-duration growth companies.
Overall, the ASX 200 delivered a total return of roughly 7% in FY26, including dividends, which is well short of its long-run average.
A hawkish surprise on Wednesday would likely pressure the market in the short term, whereas a soft print could do the opposite.
Foolish takeaway
Independent economist Saul Eslake has said he expects an August increase, but would reconsider if inflation comes in around 3% to 3.25% or lower. That is a useful marker to hold in mind when the numbers land.
It is worth remembering that a single interest rate decision rarely determines long-term returns.
Investors who bought index funds through the tightening cycle of 2022 and 2023 have generally been rewarded for sitting still.
The risk may not be that the Reserve Bank moves, but rather that reacting to a short-term number may have implications for longer-term returns for ASX investors.
