Two weeks ago, we told you exactly what to watch for in the June 24 CPI release — the three scenarios that would shape the August 11 RBA decision. The verdict is in. And it delivered the most dangerous kind of inflation reading: one that looks reassuring on the surface while the number that actually matters moved in the wrong direction.
Headline CPI fell to 4.0%, well below the 4.4% the market expected. That's the number that led every business page on Tuesday. But the trimmed mean — the underlying measure that strips out one-off distortions and tells the RBA what inflation is genuinely doing — rose to 3.6%, its highest point in 20 months. If you're on a variable rate, weighing a fixed-rate switch, or sitting on pre-approval before August, here's what this split reading actually means — and what to do about it before August 11.
Two readings, two completely different stories
The headline number fell because of one government policy: the fuel excise cut. The federal government slashed the excise from 52.6c to 26.3c per litre in April, gutting transport costs and pulling headline CPI lower. Transport inflation dropped from 8.9% to 3.3% in two months — driven entirely by that single measure. Housing inflation? Still running at 6.5%. Food? 3.3%. Services? Stubbornly elevated.
The trimmed mean is designed to filter out exactly these kinds of distortions. It drops the most extreme price movements — up and down — and gives you the underlying inflation signal. At 3.6%, above the consensus forecast of 3.5%, and up from April's 3.4%, the trimmed mean is moving away from the RBA's 2–3% target, not toward it. It's the highest reading since September 2024. And it's the measure the RBA's Monetary Policy Board actually responds to.
Headline CPI — May 2026
Down from 4.2% in April. Beat expectations of 4.4%. Driven by the fuel excise cut — a one-off policy effect that partially reverses on 1 July.
Trimmed Mean (Core) — May 2026
Up from 3.4% in April. Beat forecasts of 3.5%. Highest reading since September 2024 — a 20-month high. This is what the RBA actually watches.
The July 1 fuel excise reversal makes this more complicated. On 1 July — next Tuesday — the excise partially reverts from 26.3c back toward 52.6c per litre. Prices at the pump will jump. Transport inflation will spike back. The headline number that reassured everyone on June 24 is about to reverse direction. The trimmed mean — which strips out those extremes — will keep giving the honest underlying read.
The oil wildcard nobody had in their May forecast
Here's where it gets genuinely complicated — and why three of the four big banks are holding their 'no more hikes' call despite the trimmed mean surprise.
The US–Iran peace deal, signed last week, reopened the Strait of Hormuz and sent global oil prices from above $120 per barrel to approximately $83–84. That's a 30%-plus drop. Cheaper crude means cheaper fuel over time — partially offsetting the July 1 excise reversal. It also means the energy price shock that drove the RBA's May Statement on Monetary Policy — which forecast headline CPI peaking at 4.8% in the June quarter — is now materially smaller than modelled.
"The end of the Iran conflict removes a key upside inflation risk that we and the RBA had been monitoring."
That's the argument from the three banks holding a pause call. Westpac, the lone hawk, counters by warning about "second-round effects" from the Middle East conflict still flowing through services and supply chains — and it's still calling August and September hikes to a peak of 4.85%.
The result: markets are currently pricing a 36% chance of an August hike — not a coin flip, but not consensus either. The definitive input to the August 11 decision won't be Tuesday's monthly indicator. It will be the June quarter quarterly CPI, due 29 July — two weeks before the RBA meets.
| Bank | August 11 call | Peak rate | First cut |
|---|---|---|---|
| CBA | Hold | 4.35% | 2027 |
| NAB | Hold | 4.35% | Jun 2027 |
| ANZ | Hold | 4.35% | 2027 |
| Westpac | Hike +0.25% | 4.85% | Late 2027 |
| Markets (ASX) | 36% hike | — | — |
What every borrower should do in the next 46 days
Forty-six days separate today from August 11. Here's the right move for each borrower type — based on your situation, not the media headline.
Variable rate above 6.5% — refinance now, not after August
The gap between the big four legacy variable rates and the current market floor is 70–80 basis points. That's $4,200 to $6,750 per year on a $600,000–$750,000 loan sitting on the table. More than 40 lenders are offering below 6.00%. August uncertainty actually works in your favour here: non-bank lenders compete hardest when the cash rate is on hold, not when it's moving. Don't wait for certainty — by the time August resolves, those offers will have repriced. Use our borrowing power estimator to sense-check what a lower rate means for your position, then book a chat about refinancing options.
Considering a fixed rate — go 1–2 years, not 3+
A 36% August hike probability is genuine near-term risk worth hedging. Today's fixed rates — Macquarie 3yr at 6.09% and ANZ 2yr at 6.29% — sit below the average big four variable rate, making a switch genuinely cost-effective. But NAB is forecasting three cuts in 2027. Locking in for 3–5 years risks missing that downswing entirely. A 1–2yr fixed rate hedges near-term hike risk without surrendering the 2027 cut window.
Pre-approved buyer — move before August 11, not after
The biggest mistake is waiting for a rate cut before transacting. The earliest any credible bank forecasts a cut is mid-2027. Twelve months of delay at current Sydney and Melbourne prices is likely to cost more than any small rate movement will deliver. Auction clearance rates are sitting below 50% — fewer bidders, longer days on market, genuine negotiating leverage. The 29 July quarterly CPI is the next binary event: it either confirms the hold case (more certainty for buyers) or surprises to the upside (which would mean even fewer competing buyers on August 12).
On the sidelines — know what you're actually waiting for
If you're waiting "until rates drop," you're waiting for mid-2027 at the earliest — on the most optimistic bank forecast available. A 36% August hike probability is not a reason to freeze. It's a reason to get your pre-approval, structure, and target suburbs locked in before August 11 resolves the uncertainty. The buyers who move in this window are transacting in the quietest market since 2022.
Frequently Asked Questions
What is the difference between headline CPI and trimmed mean CPI?
Headline CPI measures the total change in prices across all goods and services. Trimmed mean CPI strips out the most extreme price movements — both the biggest risers and fallers — to reveal the underlying inflation trend. The RBA uses trimmed mean as its primary gauge because one-off policy changes like fuel excise cuts can distort the headline number without reflecting genuine inflationary pressure.
Why did May 2026 headline CPI fall while trimmed mean rose?
The federal government's fuel excise cut halved the excise from 52.6c to 26.3c per litre in April 2026, slashing transport inflation from 8.9% to 3.3%. This dragged headline CPI lower while housing (6.5%) and food (3.3%) inflation remained elevated. The trimmed mean ignored those transport extremes and captured the broader underlying pressure, which rose from 3.4% to 3.6% — a 20-month high.
Is an August 2026 RBA rate hike likely?
Markets are pricing a 36% probability of an August 11 hike — not consensus, but not negligible. CBA, NAB, and ANZ all forecast a hold at 4.35%, with cuts not arriving until 2027. Westpac is the outlier, forecasting hikes in both August and September to a peak of 4.85%. The June quarter quarterly CPI on 29 July 2026 will be the decisive data point before the August 11 meeting.
What does the US-Iran peace deal mean for Australian mortgage holders?
The deal reopened the Strait of Hormuz, dropping Brent crude from above $120 to around $83–84 per barrel. Cheaper oil reduces the inflationary energy pressure that drove the RBA's hawkish May forecasts — which is the primary reason CBA, NAB, and ANZ are holding a no-more-hikes call despite the core CPI surprise. The net effect on the RBA's August decision won't be clear until the 29 July quarterly CPI.
When will Australian interest rates fall?
The most optimistic major bank forecast comes from NAB, which predicts three 0.25% cuts in 2027 (June, September, December), bringing the cash rate to 3.60% by end of 2027. CBA and ANZ expect cuts in 2027 but have not specified the timing. Westpac does not forecast cuts until late 2027 at the earliest, given its 4.85% peak rate prediction. No major bank is forecasting any cut in 2026.
