Reserve Bank interest rates: Big lift in headline inflation as power credits end

A sharp rebound of inflation will “unsettle” the Reserve Bank as the board mulls the chances of a fourth interest rate cut.

Prices lifted 2.8 per cent in the year to July, according to the Australian Bureau of Statistics.

That was up from 1.9 per cent in the previous month and came as government electricity bill credits unwound, pushing up power prices.

The monthly numbers are notoriously volatile and the RBA does not rely on the figures when setting interest rates.

But it will give the central bank reason to hold fire in September and wait until the following meeting in November to decide whether to move — when more data will be available to give a fuller picture of cost of living pressure.

“This is the highest annual inflation rate since July 2024, following several months of easing inflation” ABS head of prices statistics Michelle Marquardt said.

Core inflation — which the RBA uses for decisions — also lifted, from 2.1 per cent to 2.7 per cent. That number remains within the bank’s target band of 2 to 3 per cent.

Minutes from the Reserve’s mid-August meeting, released on Tuesday, had indicated one or two more rate cuts would be considered in the next six months.

But any sign that core inflation is heating up again will give the RBA reasons to hold fire.

eToro analyst Josh Gilbert said the numbers suggested price pressure was “stickier” than hoped.

“The data will be a setback for those expecting continued easing after the rate cut earlier this month,” he said.

“While the RBA has signalled more easing is likely, today’s figures reinforce the board’s cautious stance and reaffirms that fighting inflation is no easy task.

“Markets still expect another cut before year-end, but if we see more reports similar to this, that expectation will diminish.

“Let’s be clear though, this is just one print. The board prefer to focus on quarterly data, but there’s no doubt this will unsettle the board.”

Moody’s Analytics’ Sunny Kim Nguyen said the data “complicates, but should not derail” the move towards further rate relief.

“Australia’s disinflationary momentum just hit a speed bump, as both headline and underlying inflation measures reaccelerated,” she said.

“While much of that reflects temporary factors, price pressures may be more entrenched than recent data suggested.”

More to come.