RBA Rate Hike Fears Squashed by Surprise Drop in Inflation

The Reserve Bank of Australia's (RBA) rate hike fears have been squashed after new inflation figures showed a surprising drop in prices across various goods and services.

The Australian Bureau of Statistics reported that prices eased for the second consecutive month in June, taking annual inflation down to 3.8 percent from 4 percent, while underlying inflation remained steady at 3.6 percent.

Westpac chief economist Luci Ellis said although the RBA may debate the case for a rate hike at next month's meeting, the case for one no longer exists. She added that the bank would likely hold the cash rate steady at 4.35 percent this year and possibly cut it from August 2027.

NAB senior economist Taylor Nugent also expects the RBA to hold policy rates at their current level of 4.35 percent before a gradual normalization beginning in May 2027. Both ANZ and Commonwealth Bank expect at least one rate cut next year, contingent on easing tensions in the Middle East.

Treasurer Jim Chalmers noted that while the figures do not capture the lift in oil prices caused by the increase in hostilities between the US and Iran, there are encouraging signs. He added that inflation has been more benign than expected, and the RBA's forecast of 4.8 percent annual inflation is likely too high.