Australia CPI inflation tops forecasts in July, boosts RBA rate-hike bets

Australia’s inflation topped expectations in July, with underlying price pressures remaining elevated, data from the Australian Bureau of Statistics (ABS) showed Wednesday, raising the risk of further interest rate hikes by the Reserve Bank of Australia.

The consumer price index  rose 3.5% year-on-year in July, down from 3.8% in June but above expectations for 3.3%. On a monthly basis, CPI increased 1% in July, also exceeding expectations for a 0.8% rise. The trimmed mean rose 3.6% year-on-year, unchanged from June and above expectations for 3.5%. It increased 0.5% month-on-month, also above expectations for a 0.3% rise.

According to RBA rate futures, traders lifted the probability of a rate hike at the RBA’s September meeting to 27%, from 17% previously, while pricing an 80% chance of a hike by February 2027. The next monetary policy board meeting is scheduled for September 28-29.

Fuel prices added to the monthly inflation pressure, with automotive fuel rising 7.5% in July after three consecutive monthly declines. The ABS attributed the increase to higher world oil prices and the partial unwinding of federal fuel-excise relief.

The release comes a day after the RBA minutes showed policymakers had discussed a 25-basis-point rate increase at their August meeting before unanimously leaving the cash rate unchanged at 4.35%. The RBA has said elevated underlying inflation reflects domestic capacity pressures alongside some cost pressures linked to the Middle East conflict.