Australia inflation peak forecast cut to 4.25% mid‑year

Australia’s Treasury now expects headline inflation to top out near 4.25% in the June quarter, a downgrade from the 5% peak forecast in the May budget [4]. The revision reflects falling oil prices and easing geopolitical risks, and it narrows the gap to the Reserve Bank’s 2‑3% target band.

Why the forecast was cut

The Treasury’s mid‑year inflation outlook was trimmed after recent data showed oil prices slipping, which directly reduces import‑price pressures. Chancellor Jim Chalmers told the Insiders program that the easing of tensions in the Middle East, particularly around the Strait of Hormuz, also helped accelerate the decline in headline price growth. The original budget projection had inflation peaking at 5% before falling to 2.5% by mid‑2027; the new figure of 4.25% shortens the period of elevated inflation and brings the economy closer to the RBA’s 2‑3% target range [4].

Implications for policy and markets

A lower inflation peak reduces the urgency for the Reserve Bank of Australia to maintain a tight monetary stance. While the Treasury did not disclose expectations for underlying (trimmed‑mean) inflation, it indicated that this gauge is also moving “ahead of schedule,” suggesting that core price pressures may be easing faster than previously thought [4]. If core inflation follows a similar trajectory, the RBA could consider pausing or moderating rate hikes at its next meeting, a factor that markets will watch closely.

What to watch

• RBA cash‑rate decision – scheduled for February 2026; any shift in the policy outlook will test whether the inflation downgrade translates into looser monetary policy.
• Upcoming CPI release – the next quarterly consumer‑price index will confirm whether headline inflation is indeed tracking toward the 4.25% peak.
• Oil price trends – further declines would reinforce the Treasury’s view, while any rebound could revive inflation concerns.

The Treasury’s revised outlook signals that Australia’s inflationary pressures are receding faster than expected, but the path back to the RBA’s target still depends on commodity price dynamics and global geopolitical developments.