Australians watching the Reserve Bank closely have noticed something: inflation keeps refusing to fully cooperate. Rate rises, wage adjustments, a slowing economy, and still the numbers stay above where the RBA wants them. If you are thinking about an investment property, an SMSF purchase, or simply trying to understand the financial backdrop, it is worth understanding why.
What the Numbers Actually Say
The short answer is that inflation is easing, but slowly. Trimmed mean inflation, the RBA's preferred measure of underlying price pressure, was 3.6% in the 12 months to July 2026, per the Australian Bureau of Statistics (ABS). The RBA's goal is to keep annual consumer price inflation between 2 and 3 per cent. The trimmed mean has been sitting above that band for some time.
Headline CPI captures every item in the basket, including volatile ones like fuel and fresh food. The trimmed mean strips out the largest price movements in either direction to reveal the steadier trend. The RBA watches it closely because it is less affected by one-off shocks.
So what is keeping the trimmed mean elevated?
The Drivers: Housing, Services, and Construction
Three categories are doing most of the work.
Housing costs are the most significant. The largest contributor to annual inflation was housing, up 6.8% in the year to June 2026, according to the ABS, reflecting higher costs for electricity, new dwellings, and rents.
Rents have eased from their peak but remain above historical norms. Nationwide rental inflation, measured by the annual change in the rents component of the CPI, was 3.9% in January 2026, down from 5.8% a year prior and a peak of 7.8% in August 2023, but still elevated compared to the long-term average of around 3%. The underlying cause is supply. Rental market conditions across Australia remain tight despite an easing in migration-based population growth, with national rental listings reportedly around 11% lower in Q4 2025 than a year prior and 17% down on the previous five-year average.
Construction costs are a second layer of pressure. The RBA has flagged that goods price disinflation has slowed, and construction is one of the sectors keeping services and housing inflation sticky, with wage growth in construction running ahead of the broader economy.
Services inflation is the third. RBA Assistant Governor Sarah Hunter has noted that while headline inflation has continued to ease, underlying price pressures, particularly from housing and services, remain persistent.
Earlier this year, the RBA projected underlying inflation would peak at 3.7% in mid-2026 and remain above the 2-3% range until early 2027.
What This Means for Property Investors and SMSF Trustees
Persistent inflation affects property decisions in a few distinct ways. It is worth thinking through each honestly.
Interest rates stay higher for longer. After cutting the cash rate in early 2026, the RBA reversed course as inflation proved sticky, lifting the cash rate in three consecutive moves to 4.35% by May 2026, and has since signalled scope to pause for the remainder of the year. Higher rates affect borrowing capacity and serviceability assessments for both standard investment loans and SMSF structures.
Construction costs are a real consideration. Building costs are rising at 4-6% in 2026. For anyone building a new property, whether inside or outside super, the gap between a contract price and a final cost has been widening. Fixed-price contracts and build timelines deserve careful scrutiny before committing.
Rental income does not keep pace automatically. Rental yields may look attractive on paper, but realistic independent rental appraisals matter more than any headline figure. Vacancy periods, land tax, rates, and management fees all affect net yield. These should be stress-tested against a range of outcomes, not a best-case scenario.
Inside an SMSF, the tax treatment of income does not change with inflation, but real purchasing power does. Earnings in accumulation phase are taxed at 15% per the ATO, and capital gains on assets held more than 12 months are effectively taxed at 10% in accumulation phase (and 0% in pension phase). The tax rate for SMSFs remains at 15% on investment earnings, with a lower effective rate of 10% on capital gains for assets held longer than 12 months. What inflation does is erode the real value of cash sitting idle inside the fund, which is a reason many trustees are looking at hard assets.
A Practical Scenario
Consider a self-employed professional in their late 40s with an SMSF in accumulation phase. The fund holds a mix of cash and listed shares. The trustee is weighing adding a residential property to the fund.
Since August 2026, new residential LRBAs (loans held directly by the fund via a bare trust) are no longer available for residential property. The structure that remains available for residential purchases in an SMSF is a unit trust arrangement, where the property is held in a unit trust that the fund invests into, and borrowing sits at the trust level rather than inside the fund itself. A cash purchase directly inside the fund is also an option where the fund balance supports it.
In accumulation phase, rental income from the property would be taxed at 15% inside the fund, not at the trustee's personal marginal rate, which may be 47% including Medicare. In a period of elevated inflation, that differential matters. An independent rental appraisal, factoring in vacancy considerations for the specific location and property type, is a necessary starting point before running any numbers.
The concessional contributions cap is $30,000 per member for 2025-26, rising to $32,500 in 2026-27. Topping up the fund before or alongside a purchase to ensure adequate liquidity is a common planning consideration, but the sequencing of contributions and purchases needs to be co-ordinated carefully with an SMSF specialist accountant.
Three Things to Do Before Making a Move
Get clarity on your fund's current position. Review the fund balance, liquidity, and any existing assets against what a property purchase would require, including the deposit, stamp duty, and an ongoing liquidity buffer. An SMSF specialist accountant can model this against your specific fund rules and current contribution caps, which you can verify directly at ato.gov.au.
Understand the right structure for your situation. Whether that is a unit trust arrangement inside the SMSF, a direct cash purchase, or a standard investment property held in your personal name, each has different tax, legal, and borrowing implications. A licensed financial adviser and solicitor should be part of that conversation, not an optional extra.
Talk to a broker about serviceability in the current rate environment. For loans outside super, standard residential investment lending applies. For the unit trust structure inside an SMSF, lenders and LVRs differ from standard residential lending. A broker who works regularly with SMSF structures can give you a realistic picture before you commit to a property search. Start at /contact or book a call at elitewealthcreators.com/booking.
Inflation affects costs, rates, rental income, and the real value of savings all at once. Understanding the mechanics is the first step to making decisions that hold up in any environment, not just the current one. For more on SMSF property structures and investment property options, see our services page or browse further reading at /insights.
General information only, not personal financial advice. Speak with a licensed adviser before acting.