Australia’s consumer price inflation accelerated more than expected in July, complicating the Reserve Bank of Australia’s efforts to return price growth to target and increasing the likelihood of further interest rate increases.
The consumer price index rose 3.5% in the 12 months to July, up from 3.8% in June and exceeding market forecasts of 3.3%. On a monthly basis, prices advanced 1.0%, also surpassing estimates of a 0.8% gain. The RBA’s preferred measure of underlying inflation, the trimmed mean, held at 3.6% year-on-year, remaining above the central bank’s forecast for a 3.3% print by year-end.
The data underscores persistent domestic capacity constraints and geopolitical cost pressures, particularly from the Middle East conflict, which continue to weigh on price stability. Automotive fuel prices surged 7.5% in July, reversing three consecutive monthly declines, as global oil markets firmed and federal fuel tax relief was partially rolled back.
The Reserve Bank of Australia has held its cash rate at 4.35% for two consecutive meetings after three increases earlier in the year. Minutes from the August policy meeting revealed officials discussed a 25 basis point hike before unanimously opting to maintain the rate, citing the need for further evidence of inflation easing toward the 2-3% target band.
Market pricing has shifted in response. The probability of a rate hike at the September 28-29 meeting has risen to 27%, up from 17% previously, while the chance of a move by February 2027 is now priced at 80%. The Australian dollar strengthened roughly 0.2% against the U.S. dollar following the release, nearing its highest level since early June, while the S&P/ASX 200 index added about 0.2%, reaching a two-week high.
