AAP Image/Steven Saphore

Why tomorrow’s CPI is the key to a rate cut

Peter Switzer
29 July 2025

There are plenty of things that move markets — inflation data, central bank statements, geopolitical curveballs, and yes, even tweets from a certain orange-haired President. But for Aussie investors, the Consumer Price Index (CPI) data landing tomorrow could be the make-or-break moment for interest rates this side of Christmas.

Let me put it simply: if CPI plays ball, the RBA could cut rates in August. If it doesn’t, well… the pause button stays firmly in place, and the market may sulk accordingly.

The Reserve Bank has been talking a big game about inflation needing to “return sustainably” to its target range of 2–3%. Now, we’ve already seen some progress on that front — last quarter’s inflation numbers were encouraging — but tomorrow’s data needs to confirm the downtrend, not derail it.

If headline inflation comes in lower than expected, it tells the RBA that interest rates are indeed doing their job: slowing the economy, easing price pressures, and giving mortgage holders a much-needed breather.

On the other hand, if inflation is stickier than a Labor backbencher on a junket, the RBA’s hands are tied. Rate cuts go back in the drawer, and borrowers will be stuck paying premium prices for their money while the rest of the economy tiptoes around the recession zone.

What the market wants

Let’s not beat around the bush — the market wants a rate cut, and soon. Why? Because lower rates provide fuel for:

  • Housing market stability (and maybe a little bounce)

  • Consumer confidence

  • Business investment

  • And yes, share prices

Particularly for those smaller, rate-sensitive stocks that have been doing not much more than treading water while the banks, Wesfarmers and JB Hi-Fi soaked up the spotlight.

If the CPI number is soft, we could see a real rotation into growth stocks — healthcare, tech, and those left-for-dead mid-caps that suddenly look good value in a falling interest rate world.

What to watch for

The key figure everyone will be watching is trimmed mean inflation, which the RBA uses as its preferred gauge. If that’s comfortably heading south, August’s RBA meeting becomes live for a cut.

The futures market is already pricing in rate cuts later this year, but tomorrow’s number is the proof point. Anything too hot, and that optimism will melt faster than an ice cream in January.

This is one of those moments where macro really matters. The CPI print isn’t just a stat — it’s the RBA’s permission slip. A good result tomorrow could mean lower mortgage rates, better business conditions, and a more bullish ASX in the second half of 2025.

Set your watches: 11:30am AEST tomorrow!

Comments
Get the latest financial, business, and political expert commentary delivered to your inbox.

When you sign up, we will never give away or sell or barter or trade your email address.

And you can unsubscribe at any time!
Subscribe
© 2006-2021 Switzer. All Rights Reserved. Australian Financial Services Licence Number 286531. 
shopping-cartphoneenvelopedollargraduation-cap linkedin facebook pinterest youtube rss twitter instagram facebook-blank rss-blank linkedin-blank pinterest youtube twitter instagram