When making predications about inflation and interest rates, economists have generally focused more attention on underlying inflation rather than headline inflation.

CBA head of Australian economics Gareth Aird writes that headline inflation is just as important for the policy outlook as underlying inflation in 2024-25.

"The headline rate of inflation from the September quarter takes on added importance because on our forecasts it will sit within the RBA's target band (of 2 to 3 per cent)," he notes.

"My colleague Stephen Wu calculated that the combined impact of the Commonwealth and State Government electricity rebates will shave two thirds of a percentage point off Q3 24 CPI.

"On our forecasts this will drop the annual rate of headline inflation to a little under 3 per cent where it should broadly sit over 2024/25."

Mr Aird says while it is true that headline inflation is 'artificially' lowered by the electricity rebates, CBA "do not expect a A75 rebate per quarter to stimulate demand more broadly in the economy".

"And actual inflation outcomes play a very important role in influencing the future path of inflation," he says.

He also argues that headline inflation plays an important role in influencing inflation expectations, indexation and wage settings.

"Lower headline CPI will also put downward pressure on wages growth in 2025 given the rate of headline inflation is often used as a starting point in a lot of wages negotiations," he says.

But in the very near‑term financial market participants will be focused on the upcoming Q2 CPI due for release on July 31.

"If the labour market were to further loosen in the June labour force survey the RBA may leave rates on hold in August with a 1.0%/qtr Q2 24 trimmed mean outcome," he notes.

"But if the labour market showed no signs of additional loosening in June the RBA may feel compelled to pull the rate hike trigger in August.

"Our base case for the RBA to sit on hold in August and to deliver a first rate cut in November is premised on both Q2 24 trimmed mean of 0.9%/qtr followed by 0.7%/qtr in Q3 24 and an ongoing upward trend in the unemployment rate."