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Welcome to Bendigo Bank’s monthly update for July, with a review of where global markets and the domestic economy are at the half-way point of 2025.

Today we’ll look at… the latest CPI data and its relevance for the RBA; our resilient labour markets, and other examples of outperformance, including the Aussie Dollar.

The new financial year kicks off with stock markets back at record highs, despite trade wars and military wars still capturing the headlines, but financial markets looking at the bright side of further increases to public spending, the promise of AI and other emerging technologies boosting revenues, and moderating inflation allowing more rate cuts ahead.

Australia’s CPI fell to 2.1% in the May monthly indicator, and even core measures such as the Trimmed Mean fell to below the 2.5% target, their lowest level since 2021… so inflation appears back under control, and (as the RBA noted in the May Statement on Monetary Policy) US tariffs may limit inflationary risks ahead here, unlike in the US where expected rising prices for consumers are constraining further US rate cuts.

As a result, the RBA appear very likely to cut rates next week to 3.6%, especially after the sluggish retail sales data just released for May.

Later this month we will see the full quarterly inflation numbers for Q2 which will feed into the timing of the next cut after that, to 3.35% ... maybe not until November, but the path back to more neutral rates does appear on track.

One of the reasons we probably won’t go below a neutral cash rate (of around 3.1 %) is resilient labour markets, with unemployment at 4.1 % still much lower today than pre-pandemic back in 2019, and its average rate through that decade of 5.5%... and similarly record lows for underemployment.

As outlined on our business insights website, we still expect slightly higher unemployment ahead, and it’s still quite uneven with only Queensland and WA in the 3s and all other states above 4% unemployment, and regional labour markets generally stronger than urban- but nationally, Australia is outperforming our economic peers.

In line with this, the Aussie Dollar has rallied against a weakening US Dollar and is now around 4 cents higher than the start of the year matching our forecasts of a path back to around 70 cents by early next year, but still with significant volatility expected.

Our assumption of a weaker US Dollar ahead lies with the expectation that
US tariffs risk Stagflation, or at best ‘Slowflation’… and recent US data clearly shows the slowdown in their economy, although not yet the expected jump for US inflation.

In summary, the global backdrop remains highly challenging although our lower direct exposure to US tariffs should translate to relative outperformance, and recent progress with moderating inflation will be very beneficial for Australia’s economy… leaving our underperforming productivity rate the primary challenge in the short term.

And that’s the market update from Bendigo Bank.