Easing inflation has led CBA’s economists to move forward their forecast for the Reserve Bank of Australia (RBA) to cut the cash rate.
CBA this week published an updated forecast, bringing forward the next 25 basis point (bps) rate cut to July, with another 25 bps cut expected in August.
This followed the Australian Bureau of Statistics releasing the Consumer Price Index (CPI) figures on Wednesday, showing inflation easing to 2.1 per cent for the year.
“The reason for the change in our forecast really comes down to a shift in tone from the RBA at their last meeting, and since then the run of data has said to us that inflation is going to remain sustainably in the band, economic growth is a little bit weak, and consumer and business sentiment is also slightly weak,” CBA economist Harry Ottley said.
“This week we got the final piece of the data puzzle, with the monthly CPI for May. In that, the headline CPI in the year to May came in at 2.1 per cent which was a little bit below what we and the market were expecting.
“Because of this, we’re now confident that the RBA won’t see the second quarter data as troublesome and will be happy to remove a bit more restrictiveness from the cash rate and deliver two more cuts this year.”
Key highlights from the May CPI data and CBA’s updated rates forecast:
- Headline CPI inflation eased to 2.1 per cent in May 2025, below the market consensus of 2.3 per cent.
- Annual trimmed mean inflation fell to 2.4 per cent a year, just under CBA’s expectation.
- Based on the data flow, CBA now expects the RBA to cut the cash rate by 25bps in both July and August.
Mr Ottley noted that the key risk to CBA’s rate forecast is an additional rate cut towards the end of this year or early next year, but at this stage the base case remains for two more cuts.
See here to read Harry Ottley’s analysis on the CPI data and read here for more details on CBA’s updated forecast for the RBA cash rate.
Go to CBA Newsroom for the latest news and announcements from Commonwealth Bank.
