Australian consumer prices rose at their fastest annual pace in a year this August, following a hot July reading. The stronger inflation data reduced market expectations for immediate policy easing by the Reserve Bank of Australia (RBA).
The Australian dollar climbed 0.3% to $0.6619, while three-year government bond futures dropped 7 ticks to 96.45, marking their lowest level in three weeks. Investors scaled back bets on a rate cut at the RBA’s meeting next week, with expectations for a November move also easing to 50%, down from almost 70% before the release.
Data from the Australian Bureau of Statistics showed the monthly consumer price index (CPI) rose 3.0% year-on-year in August, compared with 2.8% in July. The result was slightly above forecasts of 2.9%. Core inflation, measured by the trimmed mean, eased to 2.6% from 2.7%. However, a gauge that excludes volatile items and holiday travel increased to 3.4% from 3.2%.
Much of the price pressure came from the services sector, leading several major banks—including Barrenjoey, Deutsche Bank, NAB, Macquarie, and Citi—to abandon forecasts for a November rate cut. Analysts at Barrenjoey called the results a “material upside surprise” and warned of lingering risks, even though they still expect a cut in the first half of 2026.
NAB now sees rates held at 3.6% until May next year, compared with its earlier view of two more cuts in November and February. The Commonwealth Bank of Australia also stated that a November cut is far from guaranteed.
The RBA has stressed that monthly CPI data is volatile, relying more on quarterly inflation figures when making decisions. Rates were only reduced this year in February, May, and August. On Monday, Governor Michele Bullock said the economy remains in good shape, with inflation expected to move back within the 2–3% target range and the labor market near full employment.
The central bank still forecasts headline inflation to rise to 3.1% by mid-2026 as energy rebates fade, while core inflation is expected to stay close to 2.6%. This outlook suggests little urgency for another rate cut at the September 29–30 meeting. Unemployment remains historically low at 4.2%.
Wednesday’s report highlighted price increases in restaurant meals, takeaway food, and audio-visual services. Housing inflation also edged higher, with new dwelling prices up 0.7% in the 12 months to August, compared with 0.4% previously.
According to Deutsche Bank chief economist Phil Odonaghoe, the labor market will be key. A weaker-than-expected jobs report could sway the RBA toward a cut in November, but volatility in the data makes it a tough call.
