Fourth RBA Rate Hike Looms After July Inflation Defies Forecasts

Concerns are mounting that the Reserve Bank will deliver a fourth interest rate increase this year, punishing millions of mortgage holders, after July inflation figures came in significantly hotter than anticipated.

The Australian Bureau of Statistics reported the annual consumer price index rose 3.5% in July, easing from 3.8% in June but missing the consensus economist forecast of 3.3%.

The Reserve Bank’s preferred trimmed mean measure—which strips out volatile items—proved even stickier, holding steady at 3.6% despite expectations it would moderate.

KPMG chief economist Brendan Rynne warned the data suggests a prolonged battle ahead. “Today’s data supports the view that without policy action we may be in for a long, costly grind to get inflation under control,” he said. “The Reserve Bank may have missed an opportunity at the last board meeting to get ahead of the game by raising rates.”

The disappointing print follows the release of minutes from the August board meeting, which revealed policymakers were unconvinced inflation would return to the 2.5% midpoint target by late 2025 and signaled a readiness to act if price pressures persisted.

Although the decision to hold the cash rate at 4.35% on August 11 was unanimous, several members considered a further hike this year “quite possible.”

The latest ABS data has prompted a sharp reassessment among economists, many of whom had previously ruled out additional tightening. NAB analysts placed their call for no further hikes “under review,” while Deutsche Bank chief economist Phil O’Donaghoe brought forward his forecast to the September meeting, labelling underlying price growth “intolerably high.”

“We think the July CPI leaves little room for the RBA to do anything other than follow through on its hawkish posturing, and the earlier it does, the better,” O’Donaghoe said.

Fuel prices surged 7.5% in the month as the excise relief concluded, reversing three consecutive monthly declines, the ABS noted.

AMP economist My Bui highlighted housing as a persistent structural challenge, with new dwelling costs jumping 5.7% annually and rents rising 3.6%. While maintaining a base case for a November hike, Bui acknowledged a September move is “certainly plausible.”

The ABS attributed the construction cost acceleration to project home builders raising base prices to offset higher labour and material expenses over the year.

Takeaway and restaurant meal prices also climbed 4.5% annually, driven by elevated operating costs for ingredients and the minimum wage increase effective July 1.

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