Australia’s consumer price index (CPI) rose sharply in July, with annual inflation climbing to 2.8% from 1.9% in June – the highest level since July 2024. The jump, well above economists’ forecasts, was driven primarily by temporary factors including delayed electricity subsidies and school holiday-related travel demand.
CreditorWatch Chief Economist Ivan Colhoun said: “Differing timing on the implementation of the latest electricity subsidies and the timing of school holidays accounted for much of the overshoot on the monthly CPI in July. Under the surface, the data suggest there’s unlikely to be significant upside or downside risk to inflation relative to the RBA’s 2.5% target in the foreseeable future, meaning developments on the unemployment rate will be key in when the RBA delivers the assumed further 50bps of rate cuts implicit in its forecasts for the economy.”
Headline and underlying pressures
Electricity prices surged 13.1% year-on-year in July, after falling 6.3% in June due to rebate timing, while holiday travel and accommodation rebounded 3.3% following a June decline.
Stripping out these volatile items, underlying inflation still accelerated, with the trimmed mean rising to 2.7% from 2.1%, slightly above the Reserve Bank of Australia’s (RBA) 2.6% forecast.
Mixed inflation dynamics
While goods categories such as furniture, clothing, and food showed moderating trends, services inflation remains elevated.
Food inflation held near 3%, though certain items such as coffee, tea, cocoa (up 14.4% year-on-year) and eggs (up 18%) continued to exert upward pressure.
Rents rose 3.9%, their slowest increase since late 2022, while new dwelling prices stabilised.
Policy outlook
Both CreditorWatch and Moody’s Analytics note that the July CPI spike complicates but does not derail the RBA’s easing trajectory.
The central bank has already delivered three rate cuts this year, with forecasts assuming another 50 basis points of reductions. The timing of these moves will hinge on labour market conditions: if unemployment rises above the RBA’s forecast of 4.3%, rate cuts could be accelerated within the next six months