Westpac Forecasts June Inflation Uptick in Australia

Westpac, one of Australia's biggest banks, is predicting that inflation in June likely increased to 4.2% from May's rate of 4.0%, according to a recent report. The bank expects this uptick to be driven by services and housing, including holiday travel, rents, and the cost of newly built homes. However, cheaper gas prices are expected to partially offset these gains.

The forecast suggests that the trimmed mean inflation rate, which strips out one-off price movements, will rise 0.4% in June, taking the annual pace to 3.7%. This aligns with Westpac's expectations for the quarterly trimmed mean at 0.9%, also resulting in a 3.7% year-over-year rate.

The Reserve Bank of Australia (RBA) primarily focuses on underlying inflation when setting interest rates, and markets tend to react more to whether this measure is cooling down. If Westpac's forecast holds true, it could lead traders to push out expectations for rate cuts, which would likely impact short-dated Australian government bond yields first, followed by interest-rate futures and the Australian dollar.