Westpac Sees RBA Holding Rate at 4.35% as Soft Q2 CPI Cools Energy Pass-Through

Q: Could sticky wage growth force the RBA into a sudden rate hike later in 2026 despite the expected August pause?

Yes, but it would likely take more than wage growth alone. The case for an August pause has strengthened because inflation softened more than expected. Headline CPI slowed to 3.8% in June and trimmed mean inflation, the RBA’s preferred core measure, was 3.6%, below its own forecast. Growth is also slowing, unemployment has risen to about 4.4%–4.5%, and housing has weakened. That argues for the RBA to stay at 4.35% now. Even so, sticky wages remain one of the clearest risks for a later hike. The Wage Price Index rose 3.3% year-on-year in the March quarter, with quarterly growth steady at 0.8%. That is not accelerating sharply, but it is still firm enough to worry policymakers if productivity stays weak and businesses keep passing labour costs into services prices. The ABS has already noted builders passing on higher material and labour costs, while several economists have warned that award wage increases and labour-intensive services inflation could keep underlying inflation sticky. That means a sudden hike later in 2026 is possible if three things line up: wages stop moderating, services inflation stays high or re-accelerates, and the labour market proves tighter than the recent unemployment figures suggest. Westpac itself says the RBA is likely to keep a hawkish bias and remain ready to tighten again if needed. For now, though, the evidence points to a pause rather than an imminent move. Sticky wages are a live risk, but not yet a decisive trigger on their own.

1 articles · Updated · investinglive.com · Aug 10

Westpac expects the Reserve Bank of Australia to leave its cash rate unchanged at 4.35% at Tuesday’s August meeting, joining CBA in an on-hold call.
Q2 CPI came in below Westpac’s forecasts on both headline and trimmed-mean measures, while earlier Middle East-driven energy cost pass-through has not continued in recent months.
Westpac still expects the RBA to keep a hawkish bias, with the bigger market signal likely to come from the Board’s tone and updated forecasts rather than a hold itself.
CBA has also argued for no change through the rest of 2026, citing softer inflation, slowing growth, faster labor-market easing and a weaker housing market.
A renewed spike in fuel and energy costs remains the clearest risk to that view, because it could revive inflation pass-through and complicate the case for staying on hold.