Australia’s underlying inflation pressures remained stronger than expected in July, reinforcing the case for a potential interest rate increase at the Reserve Bank of Australia’s November policy meeting.
The trimmed mean Consumer Price Index, the RBA’s preferred inflation gauge, rose 0.5% month-on-month, surpassing both bank and market expectations of 0.3%. The annualized three-month measure climbed to a record 4.7%, while 61% of the CPI basket posted gains above 3%, ANZ Research noted. Discretionary spending categories such as apparel, footwear, restaurant meals, furnishings and domestic leisure travel drove the increase, signaling robust household demand.
New dwelling costs rose 0.4% for a second consecutive month, though ANZ found little evidence of broader second-round inflation pressures in food. The data suggests household demand may not be as weak as previously assessed, with the July household spending indicator serving as a key test of consumption appetite.
The RBA maintained its benchmark cash rate at 4.35% during its August meeting. The central bank had previously projected an average quarterly rise of 0.8% in the second half of the year. With underlying inflation trends persisting, markets are pricing in a 40% probability of a rate hike at the November 28-29 policy meeting, up from earlier expectations.
ANZ Research highlighted the persistence of price pressures as a primary driver of the elevated inflation readings. The firm’s analysis contrasts with earlier assumptions of weaker demand, adding weight to arguments for tighter monetary policy in the near term.
