Australia CPI Beats Forecasts in July, Boosting RBA Rate-Hike Bets
Australia’s inflation came in hotter than expected in July, while underlying price pressures remained stubbornly high. The latest data from the Australian Bureau of Statistics (ABS) increased expectations that the Reserve Bank of Australia (RBA) may need to raise interest rates again.
Australia CPI Exceeds Market Expectations
Australia’s Consumer Price Index rose 3.5% year-on-year in July, slowing from 3.8% in June but exceeding market expectations of 3.3%.
On a monthly basis, CPI increased 1.0%, also coming in above forecasts for a 0.8% rise.
Underlying inflation remained elevated as well. The trimmed mean CPI rose 3.6% annually, unchanged from June and slightly above expectations of 3.5%.
Month-on-month, trimmed mean inflation increased 0.5%, compared with forecasts for a 0.3% rise.
RBA Rate-Hike Expectations Increase
The stronger inflation figures prompted traders to increase expectations for another interest rate increase from the Reserve Bank of Australia.
According to RBA rate futures, the probability of a hike at the central bank’s September meeting rose to 27% from 17%.
Markets are also pricing in roughly an 80% chance of another rate increase by February 2027.
The RBA’s next monetary policy meeting is scheduled for September 28-29.
Higher Fuel Prices Add to Inflation Pressure
Fuel prices were one of the main contributors to July’s inflation increase.
Automotive fuel prices jumped 7.5% during the month after declining for three consecutive months.
The ABS attributed the rise to higher global oil prices and the partial reversal of federal fuel-excise relief.
Higher energy costs can feed through to transportation and production expenses, potentially keeping broader inflation pressures elevated.
RBA Considered a Rate Hike in August
The inflation report arrived one day after RBA meeting minutes revealed that policymakers had discussed a 25-basis-point interest rate increase at their August meeting.
However, the board ultimately voted unanimously to keep the cash rate unchanged at 4.35%.
The RBA has said that persistent underlying inflation reflects domestic capacity constraints as well as additional cost pressures linked to the Middle East conflict.
Cash Rate Remains at 4.35%
The Reserve Bank has now kept its benchmark cash rate at 4.35% for two consecutive meetings.
That pause followed three interest rate increases earlier in the year as policymakers attempted to bring inflation back under control.
The central bank has continued to signal that further monetary tightening remains possible if inflation proves more persistent than expected.
Core Inflation Remains Above RBA Forecast
The RBA had previously projected that trimmed mean inflation would slow to approximately 3.3% by the end of 2026.
However, July’s underlying inflation reading of 3.6% remains well above that projection.
If core inflation continues to stay elevated, policymakers could face stronger pressure to raise rates again in an effort to cool demand and return inflation toward the RBA’s target range.
Australian Dollar Strengthens After CPI Data
The hotter inflation report provided support to the Australian dollar.
The AUD/USD pair gained around 0.2%, trading near levels last seen in early June.
Meanwhile, the S&P/ASX 200 also rose approximately 0.2%, reaching its highest level in about two weeks.
Investors will now closely monitor upcoming inflation, employment and economic growth data for further clues on whether the RBA will resume its rate-hiking cycle.
