Australia Q2 CPI rose just 0.6%, half Q1's pace, ending RBA tightening risks. Westpac drops its 2026 hike call. The AUD jumped. The FOMC and BoE held steady.
Australia's second-quarter headline CPI rose 0.6%, less than half the 1.4% gain in Q1. The trimmed mean, the RBA's preferred measure, rose 0.8% in the quarter. It brought the annual rate to 3.6%. The print came in 0.2 percentage points below the central bank's own forecast from its May Statement on Monetary Policy.
Westpac Chief Economist Luci Ellis said the bank no longer expects additional rate hikes in 2026. The cash rate at 4.35% is appropriately restrictive to return inflation to the midpoint of the target range over the forecast period, she said. Westpac said the board is likely to hold a hawkish posture until risks fully subside. The data removes the immediate threat of a tightening.
Two areas the RBA and analysts had been watching closely were housing and market services. Prices in these sectors are now rising at a less alarming pace. This eases fears of rapid pass-through. The slowdown in the trimmed mean shows the disinflation process is broader than the headline drop alone, Westpac said.
Offshore, the FOMC left rates unchanged at its July meeting. The Committee described activity as solid, aided by strong investment and productivity growth. The labor market is broadly balanced. Inflation remains well above target. The statement signaled the Committee is not in a rush to determine whether the current stance of policy is appropriate.
The FOMC will be "live" at the September and October meetings. A hold is the most likely outcome. The margin is narrow. Risks to inflation and the long end of the yield curve could force the FOMC's hand sooner than data alone would dictate, the statement implied.
US Q2 GDP slowed to 1.5% annualised. The underlying detail was stronger than the headline. Consumer spending rebounded strongly after a weak Q1. Business investment held its momentum. A surge in imports offset the domestic strength. The report showed the US remains reliant on global supply chains. Core PCE slowed to 0.1% in June.
Energy prices are a significant risk. Brent crude swung between $82 and $97 this week. The US and Iran halted then resumed military strikes. The Houthis and Iran-linked groups in Iraq sought to disrupt energy trade in the region. Communication between Washington and Tehran runs through intermediaries. Their positions on key issues remain far apart.
The Bank of England held rates in a split vote. Six members voted for the hold, three for a 25bp hike. BoE policymakers said risks from the Middle East remain a concern. Recent data has increased confidence that the domestic disinflation process remains intact. The BoE cited the recent downside surprise for inflation and slower wage growth as evidence.
Updated forecasts lowered the inflation profile while modestly upgrading growth expectations. The BoE said the current stance is appropriate for now. The Committee needs to assess the risks meeting by meeting.
The next weekly COT data release will show how speculative positioning shifted after the CPI print. The RBA board next meets on August 5-6. The Q2 CPI print and the June labour force report will be on the table. The shift in the rate path follows a period where the Aussie dollar had firmed on the prior RBA hold.
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