Australian inflation is easing again. The Australian Bureau of Statistics reported that the Consumer Price Index rose 3.5 per cent in the 12 months to July 2026, down from 3.8 per cent in the year to June. That is a move in the right direction for households that have watched prices climb for years. The detail underneath the headline number, though, explains why the Reserve Bank of Australia is unlikely to rush into cutting the cash rate, and why your borrowing power may not shift much in the near term.
For anyone weighing a car loan, a personal loan or a refinance, the inflation print matters because it shapes what the RBA does next, and the cash rate flows through to the rates lenders offer.
Inflation cooled, but the core measure did not
The headline figure fell, yet the measure the RBA watches most closely barely moved. Trimmed mean inflation, which strips out the largest price rises and falls to reveal the underlying trend, held steady at 3.6 per cent in the 12 months to July, unchanged from June. On a monthly basis the CPI rose 1.0 per cent in July.
The gap between those two numbers is the real story. A falling headline rate can reflect one-off movements in volatile items such as fuel or holiday travel, while a sticky trimmed mean suggests price pressure is still broad based across the economy. The RBA has been clear that it wants to see the underlying trend fall convincingly before it eases policy.
Why the trimmed mean matters more to the RBA
The RBA targets inflation of 2 to 3 per cent on average over time. At 3.6 per cent, the trimmed mean is still sitting above the top of that band. That is the key reason markets are not banking on a near-term cut, even with the headline rate heading lower.
The cash rate has held at 4.35 per cent since the board last met on 12 August 2026 and left it unchanged. The next decision lands on 22 September 2026. Until underlying inflation is clearly back inside the target band, the RBA has signalled it will move carefully rather than pre-empt the data.
What steady rates mean for your borrowing power
Borrowing power is the amount a lender will advance based on your income, your expenses and your existing commitments. When the cash rate holds, the interest rates behind car loans, personal loans and home loans tend to hold too, so the repayment on a given loan size stays broadly stable.
That cuts both ways. You are not facing higher repayments from a fresh rate rise, but you are also not getting the borrowing-power boost that a cut would deliver. If you want to see how a change in rate or term moves your repayment, our repayment calculators let you model the numbers before you apply.
Housing and food are still stretching budgets
The largest contributors to annual inflation were Housing at 5.0 per cent, Food and non-alcoholic beverages at 3.2 per cent, and Recreation and culture at 2.6 per cent. Housing and food are non-negotiable line items in most household budgets, so a slowing inflation rate does not mean the cost of living is falling. Prices are still rising, just a little less quickly than before.
For loan applicants this matters because lenders assess your living expenses when they work out serviceability. Higher essential costs can trim the surplus a lender uses to service new debt, which is why keeping a clear picture of your spending helps before you apply. A tidy set of recent bank statements, with predictable outgoings, tends to present better than a stretched budget. It also pays to remember that lenders apply a serviceability buffer on top of the actual rate, so they test whether you could still meet repayments if rates rose. When inflation is sticky and the RBA is holding, that buffer stays in place, and it is one of the quieter reasons borrowing capacity has not loosened even as the headline inflation rate falls.
How the rate outlook feeds into car and personal loans
Car loan and personal loan pricing does not track the cash rate one for one, but the broader rate environment still sets the tone. When the RBA is on hold and underlying inflation is sticky, lenders have little reason to reprice sharply in either direction. You can compare current advertised ranges on our car loan rates page and see how different lenders are positioned before you commit.
If you already hold a loan taken out when rates were higher, a stretch of stable rates can still be a sensible time to review it. A refinance may lower your repayment if your credit profile or the wider market has improved since you signed, independent of what the RBA does next. Borrowers weighing certainty against flexibility can also read our explainer on fixed versus variable loans during a rate pause.
The 22 September RBA decision is the next signal
The July inflation figures are the most recent read before the RBA meets on 22 September 2026. A further fall in the trimmed mean would strengthen the case for eventual cuts, while another steady or higher print would keep the board patient. Either way, the direction of underlying inflation, not just the headline, is what will move rates and borrowing power over the months ahead.
For now, the practical picture is that conditions are stable rather than shifting. That predictability makes it a reasonable window to model your numbers, compare rates and get your paperwork in order, so you are ready to move whenever the rate cycle turns. For a refresher on how the cash rate connects to loan pricing, see our explainer on what the RBA cash rate means for car loans, and our overview of mortgage rates in Australia.
This article is general information only and does not take your personal circumstances into account.
