Pressure on Australia's inflation continued to ease in the second quarter even as electricity prices increased following the expiry of key cost-of-living supports, according to a Thursday report by Westpac Banking (ASX:WBC, NZE:WBC).

The consumer price index (CPI) growth slowed to 0.7% in the June quarter, bringing annual inflation to 2.1%, near the lower end of the Reserve Bank of Australia's (RBA) target band.

Most components of the CPI broadly matched forecasts, with notable exceptions including a weaker-than-expected rise in holiday travel and a sharper-than-anticipated decline in pharmaceuticals, partially offset by stronger food prices and smaller falls in car and auto fuel costs, per the report.

Housing costs came in slightly softer than expected in the June quarter, driven by a smaller-than-anticipated rise in utilities, while rents and dwelling prices increased in line with forecasts.

Trimmed mean inflation rose 0.6% in the June quarter, slightly below expectations, holding the annual pace steady at 2.7%, which is above the RBA's 2.6% forecast and shows core inflation remains well within the target band, Westpac noted.

Inflation for essential goods and services slowed to 1.8% annually in the June quarter, largely due to cost-of-living rebates suppressing electricity prices, set to reverse in the second half of the year, while inflation for non-essential goods and services remained subdued at 1.9%, just below the RBA's target band.

Energy rebates kept bills 6.2% lower year on year, but electricity prices rose 8.1% in June, as rebates expired in Perth and Brisbane, with a further 6% rise expected later this year.

Auto fuel prices dropped 3.4% in June, led by lower crude oil and a stronger Australian dollar, with declines expected to continue into early 2026.

Westpac cut its CPI and trimmed mean forecasts by 0.1 percentage points, now projecting quarterly rises of 0.8% and 0.6%, respectively, with annual CPI at 2.7% and trimmed mean easing to 2.4%, just below the RBA's 2.6% target for December.