Inflationary pressures in Australia have continued to subside, with demand pressure returning to pre-pandemic levels but supply pressure remaining more persistent.
KPMG expects a mixed picture ahead, and in the near term we anticipate headline inflation to stay around the midpoint of the target range in the first half of the year. However, with geopolitical tensions increasing, we could see Australian inflation rebound towards the latter half of the year.
Inflationary trends
International trends
- Global uncertainty has skyrocketed following changes in tariffs and has continued to evolve since. High uncertainty will look to complicate the outlook for inflation dynamics.
- Pressure on supply chains has eased for now, as businesses contend with a quieter outlook for global demand and trade volumes. However, this may be the calm before the storm, as global tensions could disrupt established trade and logistics dynamics.
- The value of the Australian dollar slumped in late 2024, weighed down by fears surrounding the effects of tariffs on commodity exports. However, the Australian dollar has been on an upward trend through most of 2025.
Domestic trends
- Growth in consumer prices held steady at 2.4% in the March quarter, as measured by seasonally adjusted annual headline inflation. This was unchanged from the December quarter result, and above the market expectation of 2.2%.
- Ongoing labour market pressures offset falling materials costs in the construction sector, whilst movements in global commodity demand lifted manufacturing prices.
- Annual wage growth accelerated for the first time since the June quarter 2024, contributing to rising real wages growth as headline inflation remained steady. However, if this trend continues without corresponding productivity gains, there is a risk of labour cost pressures to reignite inflation in the economy.
Australian Inflation and Cost Dynamics – June 2025
Trends in international prices, consumer prices, producer prices and wages.
Download report (PDF 374K)Why KPMG
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