Every few months the inflation figures land and quietly reset the ground beneath every financing decision a business makes. The June quarter numbers delivered a genuine surprise, and for once it was a welcome one. For business owners and CFOs weighing up whether to borrow, refinance, or press go on a major purchase, the detail behind the headline matters far more than the headline itself. So we want to walk through what actually happened, why it shifts the near-term outlook for interest rates, and what a sensible business might do with that information.
A softer read than anyone expected
Core inflation, the trimmed mean measure the Reserve Bank watches most closely, rose 0.8% over the June quarter (ABS, June quarter 2026). That figure looks unremarkable on its own, but it lands well when you set it against what the market and the central bank were bracing for. The consensus had pencilled in 0.9%, and the Reserve Bank’s own May forecasts assumed a firmer 1.0%. Undershooting both is a meaningful result, and it runs against the story many of us have been hearing all year about relentless margin pressure and businesses lifting prices at every turn.
The market reaction was swift. Pricing for another rate hike has fallen away sharply, with the probability of a move in August now sitting close to zero and less than half a hike priced in before the end of 2026. In other words, the expectation that borrowing costs might climb again has largely evaporated over the space of a single data release.
Step back and the trend is even more encouraging. Core inflation has been remarkably subdued through the first half of 2026, running at roughly a 3.4% annualised pace against a 4.1% annualised pace for headline inflation. Compare that with the back half of 2025, when underlying inflation was tracking closer to 4.0% annualised, and you can see the shape of a downward path forming. We would be the first to caution against reading too much into any single quarter, and the next few months will be critical in confirming whether inflation is genuinely on a road back to the 2 to 3% target band. But the direction of travel is the friendliest it has looked in some time.
Where the softness came from
It is worth understanding what actually drove the number down, because the composition tells you how durable it is likely to be. Housing lost some steam in June, and that did much of the work. New build cost growth slowed markedly to 0.4% over the month, after increases of 0.9% and 0.7% in the preceding months. Rents, meanwhile, stayed stable despite a historically low vacancy rate and a pickup in advertised rents, with the quarterly outcome sitting inside the target band. Between them, rents and new build costs make up around 14% of the consumer price index and serve as a reliable gauge of underlying pressure, so a softer reading here gives the Reserve Bank real comfort that inflation is not drifting further away from target.
There was also little sign of cost pass-through bleeding into discretionary spending. Dining out and takeaway prices rose 0.9% over the quarter, but with no obvious acceleration compared with earlier periods. Read between the lines and that tells you something important about the trading environment. Many businesses across domestic services are absorbing tighter margins rather than passing costs on, most likely because demand is soft enough that raising prices risks losing customers. If you run a business in hospitality, retail, or consumer services, that will ring true, and it is a reminder that the inflation relief we are seeing is partly the product of owners doing it tough on the margin line.
The fuel wildcard
One reason we are not popping the champagne is fuel. Automotive fuel prices fell 10.9% in June during a period of calm in the conflict between the United States and Iran, and that single move flattered the overall figure. That drag is set to reverse. In July, the first half of the fuel excise subsidy begins rolling off, worth around 16 cents, and it arrives alongside a lift in oil prices. Together those forces will push fuel from being a drag on inflation to a contributor in the July and August readings.
The practical takeaway is that the next couple of inflation prints could look hotter than the June quarter did, even if nothing fundamental has changed underneath. We mention this because it is exactly the kind of base effect that can spook markets and generate unhelpful headlines. A business that understands the mechanics will not be rattled by a temporary bump driven by fuel and the unwinding of a subsidy.
What the Reserve Bank is likely to do
Pulling it together, our read is that the Reserve Bank stays on hold in August, leaving the cash rate at 4.35%. The economy is broadly tracking the central bank’s May forecasts, inflation has surprised to the downside, and there is simply no pressing case to move in either direction. That is the good news.
The more sober point is that a single soft quarter does not flip the outlook. The balance of risks still leans towards inflation proving stubborn rather than the economy falling off a cliff, and the commentary out of the Reserve Bank this week carried a distinctly cautious tone. The possible pass-through of business costs to consumers in the September quarter, the annual round of price increases many firms put through, and the ongoing volatility in the Middle East all argue for patience. We think it is too early to be talking seriously about rate cuts, and our working assumption is an extended period of stability at 4.35% rather than an imminent easing cycle.
What this means for your decisions
So how should a business owner or CFO use all of this? The single most useful conclusion is that you can stop waiting for a rescue in the form of near-term rate cuts. If your plans have been on hold in the hope that money gets cheaper in a hurry, the current evidence does not support that bet. We would encourage structuring your debt on the assumption that 4.35% is roughly where things sit for a while yet.
That has a few practical implications. On debt structure, it is worth stress-testing your facilities against a rate that holds steady rather than one that falls, and making sure your repayments are comfortable at today’s levels rather than tomorrow’s hoped-for ones. For businesses carrying a mix of facilities, this is a sensible moment to review whether the split between fixed and variable still suits your appetite for certainty, particularly if a stable outlook makes locking in part of your exposure less of a gamble.
On refinancing, stability is quietly a gift. When the cash rate is jumping around, lenders price defensively and margins widen. A settled outlook tends to sharpen competition between banks and non-bank lenders, and that is precisely the environment in which a well-prepared refinance can shave real cost off your interest bill. If you have not tested your current rates against the market in the past year, now is a good time.
On expansion and asset finance, certainty is worth more than most owners give it credit for. If you have been sitting on a decision to buy equipment, take on a new site, or fund a growth push, a stable rate outlook removes one of the big unknowns from the business case. It lets you plan cash flow with more confidence, which is often the difference between a project that gets approved and one that keeps getting deferred.
And on working capital, the softer inflation picture is a double-edged story. Costs may be easing at the margin, but the reason services inflation is subdued is that demand is soft and many businesses are wearing thinner margins to hold their customers. That makes a healthy cash buffer and the right working capital facility more valuable, not less, heading into a period where trading conditions stay competitive.
None of this calls for dramatic action. It calls for structuring your borrowing around the world as it actually is, a world of steady rates, easing but sticky inflation, and a central bank in no hurry to move.
If you would like to talk through what a stable rate outlook means for your particular facilities, or you simply want a second set of eyes on whether your current lending is still the best fit, we are always happy to have that conversation. And if a refinance or a new facility is on your mind, it costs nothing to explore what the market can do for you right now.
This blog is general information only and does not take into account your personal circumstances. It is not personal financial, tax or credit advice. Please seek advice tailored to your situation before making any decision.
