Inflation expectations ease to 4.7%, but core inflation stays sticky

InflationExpectations ease to 4.7%, core still sticky

Consumer inflation expectations eased to 4.7% in July, down sharply from 5.5% in June and the lowest reading since January. The pullback is a welcome sign that households now see the inflation pulse fading, even if expectations remain well above the RBA’s 2–3% target band and continue to warrant close attention from policymakers.

• The improvement reflects moderating headline inflation, but the underlying picture is rather less comforting. The trimmed mean CPI, the RBA’s preferred gauge of core price pressures, rose 3.6% over the year to May, its fastest pace since September 2024, a reminder that the last leg of disinflation is proving the hardest one to win.
• Governor Michele Bullock credited the three rate hikes delivered since early 2026 with curbing domestic price pressures and containing the spillover from higher oil and commodity costs, which have been amplified by the conflict in the Middle East and the associated disruption to energy markets.
• The central bank has reiterated its commitment to restoring price stability. Its message is consistent: the late-2025 acceleration in inflation was driven by supply shocks and energy costs, and tighter policy settings should gradually bring those pressures to heel over the coming quarters.
• For investors, the gap between cooling expectations and stubborn core inflation frames the policy debate for the rest of the year. Expectations surveys influence wage- and price-setting behaviour, so a sustained decline would give the RBA valuable breathing room, but the Board will want the hard CPI data to confirm the trend before declaring victory.

Consumer ConfidenceConfidence rises 0.6pts

Labour MarketCracks forming beneath the surface

• May’s Labour Force Survey looked healthy at face value, with employment up 40.3k and unemployment down to 4.4%. But with earlier distortions faded, the trend is soft: jobs growth stalled over April and May, running well below growth in the working-age population.
• For June, Westpac expects a modest 15k lift in employment, with participation steady at 66.7% and unemployment holding at 4.4%. Forward indicators are downbeat; NAB’s Q2 survey showed the largest fall in year-ahead hiring intentions since the pandemic.
• A corrected ABS ‘systems error’ revealed underemployment was revised up from 6.1% to 6.6% in May, the highest since August 2024. Unofficial measures have climbed even faster, a sign slack is building and unemployment is likely to grind higher.

Foreign ExchangeAUD dips below 0.70, still set for weekly gain

• The Australian dollar slipped below US$0.70 but held near a three-week high and remains on track for a third consecutive weekly gain, with the US dollar broadly weaker even as the escalating Middle East conflict weighed on risk sentiment.
• Softer-than-expected US consumer and producer inflation data prompted markets to scale back the likelihood of a near-term Federal Reserve rate hike, sapping support for the greenback and giving commodity currencies room to run.
• Gains in the Aussie were nonetheless capped by geopolitics. Brent crude has surged about 17% over the past two weeks on fears that prolonged disruption to shipping through the Strait of Hormuz could reignite global inflation and complicate the policy outlook for major central banks.
• At home, tightening expectations remain subdued, with markets pricing only a 20% chance of an August rate hike and around 60% odds of a move by December. With the RBA in data-watching mode, this month’s jobs report and the Q2 CPI print loom as the key local catalysts for a break in either direction.

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Sources: Melbourne Institute Consumer Inflation Expectations (July 2026), ABS, RBA, Westpac Economics (Weekly, 13 July 2026), ANZ-Roy Morgan. This summary is for informational purposes only and should not be considered financial advice. Always consult a professional before making investment decisions.