RBA Recap

• RBA holds cash rate at 3.85%, surprising markets that had fully priced in a cut following soft May inflation data. Despite growing expectations for easing, the Board opted to wait for more comprehensive evidence, particularly the Q2 CPI, before moving.
• The first-ever vote breakdown reveals a divided Board with 6 members voted to hold, 3 voted to cut. This historic step toward transparency highlights internal debate on the right timing for rate cuts, not whether they’re needed.
• The RBA made clear that any future move depends on confirmation that inflation is sustainably tracking back to target, with services inflation under the spotlight.

The Australian Economy

• Disinflation continues, but market optimism got ahead of the data.
  May CPI fell to 2.1% y/y, the lowest in the series, prompting rate cut bets, but the RBA remained cautious, preferring confirmation from Q2 CPI before acting.
• Household consumption remains weak despite income gains, with spending skewed toward essentials. The new Household Spending Indicator showed only patchy strength mostly in non-discretionary categories like health and transport.
• Labour market conditions have stabilised but no longer show signs of tightening.
  Employment has plateaued, the participation rate slipped, and business surveys hint at softening hiring intentions. Despite this job vacancies remain elevated, and unemployment is steady at 4.1%.

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