Australia's inflation has slowed more than expected in the second quarter of 2025, reaching its lowest level in more than four years. The annual inflation rate now stands at 2.1%, down from 2.4% in the first quarter. This figure also came in lower than the 2.2% expected by many, bringing inflation close to the Reserve Bank of Australia’s (RBA) target range of 2% to 3%.
On a quarterly basis, inflation rose by just 0.7%, lower than the 0.9% seen in the previous quarter. These results suggest that price pressures are easing steadily, giving the central bank more room to consider interest rate cuts in the near future.
The Australian Bureau of Statistics noted that while prices for housing, food, beverages, and health services continued to climb, these increases were largely balanced out by falling transportation costs.
The RBA has been closely monitoring inflation trends. In a speech last week, it was indicated that the central bank expected inflation in the June quarter to fall within the lower half of its target range. This cooling of prices is partly due to temporary government measures aimed at easing the cost of living. However, officials also acknowledged that inflation may pick up again toward the end of the year as these measures phase out.
So far this year, the RBA has already cut rates twice, each time by 25 basis points, after previously pushing rates to a 12-year high of 4.35%. Despite the encouraging inflation data, the bank kept rates unchanged at its last meeting, preferring to wait for further confirmation that inflation is firmly under control.
While inflation numbers support the case for a rate cut, other indicators such as private demand and labor market conditions have remained stronger than expected. The central bank remains cautious as it balances inflation control with economic stability.
Australia’s economic growth, however, is showing signs of weakness. The gross domestic product (GDP) grew only 1.3% year over year in Q1 2025, falling short of expectations. Quarterly growth was just 0.2%, below the predicted 0.4%, with declining government spending and weakening exports contributing to the slowdown.
Rising unemployment — now at 4.3% — adds another layer of concern. Together with slowing growth and easing inflation, these trends strengthen the argument for more monetary support. Markets are now widely anticipating a rate cut at the RBA’s next meeting.
