Data comes in above consensus, giving RBA little reason to shift its hold-and-watch approach
Australian inflation eased in July but still ran hotter than economists expected, reinforcing the Reserve Bank of Australia's (RBA) message that a rate cut is not on the table.
The Consumer Price Index (CPI) rose 3.5% in the 12 months to July, down from 3.8% in June, but the result remains above the 3.2–3.3% range most bank economists had pencilled in. The monthly CPI also rose 1%, ahead of the 0.8% forecast and the fastest monthly increase in four months.
Underlying inflation told a similar story. Trimmed mean CPI, the RBA's preferred measure of core price pressure, held at 3.6% year-on-year – unchanged from June and above the roughly 3.5% economists had expected.
What's driving inflation?
Housing was the largest contributor to annual inflation as builders passed on higher costs for materials and labour, while food and non-alcoholic beverages rose 3.2%, driven largely by meals out and takeaway, which climbed 4.5% over the year.
On a monthly basis, automotive fuel prices jumped 7.5% in July after three straight monthly falls, as world oil prices rose and federal fuel excise relief measures were partially unwound.
Why the RBA isn't budging
The data landed less than 24 hours after the release of the minutes from the Reserve Bank's August board meeting, which confirmed the board did not consider a rate cut when it held the cash rate at 4.35%.
RBA deputy governor Andrew Hauser had separately warned the previous week that the global AI investment boom is itself an upside risk to inflation. "If those upside risks to inflation crystallise and we don't see inflation coming down we'll have to raise interest rates again," Hauser said.
That warning was echoed in the Board's own minutes, which state the RBA "will continue to do what it considers necessary" to hit its inflation target, "including increasing the cash rate target if upside risks materialise".
Today's above-forecast print effectively removes any near-term argument for easing. It follows a run of monthly readings that had been drifting toward the top of the RBA's target band earlier in the year, and comes as rapid growth in data centre construction adds further strain to the labour and construction markets the RBA is watching closely.
What it means for September decision
July's print is the final inflation read before the RBA's September board meeting, and a hotter-than-expected result narrows the central bank's room to move.
Rate forecasts from all four major banks already suggest the cash rate has peaked – but none expects a cut before 2027, a timeline this data does nothing to pull forward.
With trimmed mean inflation stuck at 3.6% for a second straight month, the RBA's own message – inflation is not returning to the top of its 2–3% band until mid-2027 – looks increasingly hard to dislodge.
