Australia's monthly consumer price index increased 1.0% in July, exceeding forecasts for a 0.8% rise and pushing the annual inflation rate to 3.5%, data from the Australian Bureau of Statistics showed.
The trimmed mean measure of core inflation, which excludes volatile items, climbed 0.5% in the month—the largest monthly gain in a year—and held at a 3.6% annual pace, defying expectations for a slowdown to 3.3%. Services inflation accelerated by 0.7% in July, while tradeable goods prices surged 1.5%. Fuel costs rebounded 7.5% after three consecutive monthly declines.
New dwelling prices rose 5.7% year-on-year, a slight deceleration from June's 5.8% pace, while rent inflation remained elevated at 3.6%. The data underscores persistent price pressures despite the Reserve Bank of Australia's (RBA) steady 4.35% cash rate at its last two meetings.
Market pricing for an RBA rate hike has firmed, with traders assigning a 38% probability to a move in September, up from 17% previously. A hike is fully priced for February 2027, according to swaps data. ANZ has revised its call to forecast a quarter-point increase in November, while Deutsche Bank anticipates a September hike. National Australia Bank said its RBA outlook is under review, and UBS sees November as more likely than September.
The Australian dollar strengthened 0.3% to $0.7183, marking a 12-week high, while three-year government bond futures pared earlier gains, declining 4 ticks to 95.41.
ANZ's head of Australian economics, Adam Boyton, noted the data suggests "strong upside risk to the RBA's near-term inflation forecast," adding that the breadth of the surprise may raise concerns for policymakers. UBS economist Stephen Wu said a September hike would signal deeper concern over being "behind the curve," potentially opening the door to multiple increases.
