Australia's consumer price inflation accelerated in July, defying forecasts and increasing the likelihood of further monetary tightening by the Reserve Bank of Australia (RBA).
The Australian Bureau of Statistics reported that the consumer price index (CPI) rose 3.5% year-on-year last month, up from 3.8% in June and above the 3.3% consensus estimate. On a monthly basis, prices increased 1.0%, exceeding expectations of a 0.8% gain. The trimmed mean measure, which excludes volatile items, also came in higher than anticipated, rising 3.6% year-on-year and 0.5% month-on-month, compared with forecasts of 3.5% and 0.3% respectively.
The uptick in inflation was partly driven by a 7.5% surge in automotive fuel prices, which followed three consecutive monthly declines. The Australian Bureau of Statistics attributed the increase to elevated global oil prices and the partial reversal of federal fuel-excise relief measures.
The RBA left its cash rate unchanged at 4.35% at its August meeting, though minutes released the following day revealed policymakers had discussed a 25-basis-point increase before unanimously opting to hold rates steady. The central bank noted that underlying inflation remains elevated due to domestic capacity constraints and geopolitical cost pressures linked to the Middle East conflict.
Market pricing has shifted in response to the inflation data. Traders now assign a 27% probability of a rate hike at the RBA's September 28–29 meeting, up from 17% previously. The odds of a move by February 2027 have risen to 80%, according to RBA rate futures.
The Australian dollar strengthened by about 0.2% against the U.S. dollar, trading near levels last seen in early June. The S&P/ASX 200 index also edged up by roughly 0.2%, reaching its highest point in two weeks.
