There’s finally some good news on the money front. Inflation is down. Again. And if you run a small business, you’ve probably been hanging out for this moment as much as your next long weekend.

According to fresh data from the Australian Bureau of Statistics, both headline and underlying inflation have dropped to their lowest levels in almost four years. And it’s not just a blip. We’ve now seen headline inflation sit comfortably inside the Reserve Bank’s 2–3 per cent target band for a full 12 months.

So, what does that mean for small businesses juggling rising wages, stubborn costs, and unpredictable customers?

Inflation cools, and that’s a win

Headline inflation clocked in at 2.1 per cent in the year to June 2025 – down from 2.4 per cent the previous quarter. Underlying inflation (the RBA’s preferred measure that cuts out the volatile stuff) came in at 2.7 per cent, also down from 2.9 per cent.

And monthly inflation? It’s sitting just under the band at 1.9 per cent. That’s the lowest it’s been since early 2021.

Treasurer Jim Chalmers was pretty chuffed with the figures, calling them “an outstanding result” and proof that inflation is “sustainably in the band”.

“This is welcome and encouraging news. When we came to office, headline inflation was 6.1 per cent and rising – it’s now about a third of that,” Chalmers declared.

One big factor behind the drop? Services inflation is now at 3.3 per cent, the lowest in three years, which is helping drive down the broader numbers.

Could a rate cut be next?

That’s the question on everyone’s lips. The smart money is leaning towards yes.

Ben Thompson, CEO of Employment Hero, reckons the latest CPI data has put real pressure on the Reserve Bank.

“With annual inflation now at its lowest level since March 2021, the case for a rate cut is getting harder to ignore,” Thompson said.

“This drop in inflation offers a much-needed sense of relief and stability… easing inflation gives business owners hope that interest rates will follow.”

Josh Gilbert, market analyst at eToro, was even more bullish:

“Today’s CPI print is the confirmation the RBA has been waiting for… an August rate cut is all but nailed on.”

According to Gilbert, markets are already pricing in a 93 per cent chance of a cut at the next RBA meeting. His tip? One rate cut now, and maybe one more before the end of the year, just don’t expect a free fall.

Ivan Calhoun, chief economist at CreditorWatch, agreed:

“This will green light a further 0.25 per cent reduction in interest rates at the August 11–12 Board Meeting – I expect a unanimous (9-0) vote this time around!”

Inflation Trimmed Mean is at its lowest level in years. Image source ABS

Not everything’s coming up roses

Sure, inflation’s cooling but let’s not crack open the Cristal just yet.

Calhoun pointed out that while inflation’s heading in the right direction, prices haven’t actually dropped. They’re just rising more slowly. In other words, you’re still paying more to fill up at the petrol station, more on your insurance, and more for that carton of eggs (though apparently that’s a temporary spike).

“Conditions are expected to remain challenging for both businesses and consumers alike,” said Calhoun. “A further reduction in interest rates will be welcomed by both groups.”

Over at JobAdder, CEO Martin Herbst had another concern: a sluggish labour market. Despite easing inflation, underemployment is still sitting at 6 per cent, and job mobility has dropped to its lowest point in over a decade.

“Falling inflation puts the RBA in a stronger position to cut rates, but that alone won’t fix the labour market,” said Herbst. “Workers are staying put, not because they’re happy, but because changing jobs still feels uncertain.”

The business impact

What does this mean for small and medium business owners? Well, first off, the drop in inflation is definitely a welcome shift. It gives you a bit more breathing room. It makes planning ahead a little easier, especially when it comes to forecasting costs and setting prices. With inflation slowing, the Reserve Bank is under serious pressure to cut interest rates. If they follow through in August, it could mean some relief on the finance front. Lower rates might ease the pressure on loans, free up cash flow, and make it a bit easier to invest in growth again.

That said, it’s not all smooth sailing just yet. Business costs, like wages, insurance, and compliance, are still on the rise. The cost of doing business isn’t coming down, just going up more slowly. So you’ll still need to keep a close eye on your margins.

However, if rates do come down and inflation keeps easing, we could start to see a lift in consumer confidence. More confidence generally means more spending, which is excellent news for small businesses hoping to boost turnover in the second half of the year.

The Reserve Bank’s next Board meeting is set for August 11–12, with their decision announced on August 12 at 2:30pm AEST. Watch this space to see if a rate cut is announced.

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