The Australian Bureau of Statistics (ABS) reported that the monthly consumer price index (CPI) increased 2.8 per cent in the 12 months to July 2025, up from 1.9 per cent in June.
Prior to the figures’ release, economists had expected a softer 2.3 per cent increase, making the outcome the highest annual inflation rate in a year and reversing months of easing.
According to the ABS, the largest contributors to the rise were housing, which lifted 3.6 per cent, food and non-alcoholic beverages, up 3.0 per cent, and alcohol and tobacco, which rose 6.5 per cent.
Measures of underlying inflation have also pointed to upward pressure. Annual trimmed mean inflation rose to 2.7 per cent to July, compared with 2.1 per cent in June.
“This was up from 2.1 per cent inflation to June and similar to the rate that we saw three months ago,” ABS head of prices statistics Michelle Marquardt said.
The CPI, excluding volatile items and the holiday travel measure, increased 3.2 per cent in the 12 months to July, compared with a 2.5 per cent rise in the year to June.
Housing appears to have played a central role, according to the ABS, with annual housing inflation reaching 3.6 per cent in July, doubling the 1.6 per cent recorded in June.
This surge was largely driven by electricity costs, which soared 13.1 per cent over the year, reversing the 6.3 per cent decline recorded in the year to June 2025.
In monthly terms, electricity prices surged 13.0 per cent in July. The ABS said the sharp rise was due to two main factors.
The largest contributor was the absence of Commonwealth Energy Bill Relief Fund (EBRF) payments in July for households in NSW and the ACT.
Rebates are instead scheduled to commence from August, leaving households to bear higher out-of-pocket electricity costs in July. Annual electricity price reviews, which took effect during the month, also contributed to the increase.
Comparisons of electricity indexes with and without the EBRF show that costs excluding the rebates rose 4.8 per cent in July. Including the rebate changes, the rise was higher at 13.0 per cent, reflecting the timing of relief payments.
VanEck Australia head of investments and capital markets Russel Chesler said the CPI represented a significant deviation from expectations.
“This is the biggest jump in monthly CPI that we have seen for quite some time, and much higher than the market’s expectation of a 2.3 per cent reading. Obviously, it is disappointing given the run we have had of easing inflation in the year to date.”
However, Chesler noted that the monthly CPI does not provide the “full picture of inflation growth”, rather an “indication of how certain sectors are trending”.
“Hence why the RBA prefers to base monetary policy decisions on the quarterly inflation prints, with the next one due towards the end of October,” he said.
Chesler added that the spike, combined with the timing of the last rate cut and labour market strength, meant another cut was unlikely before November.
State Street Markets head of APAC macro strategy Dwyfor Evans agreed that the surprise CPI data would weigh on monetary policy.
“The upshot is that this will likely bias the RBA towards a more cautious hold in rates at its late September meeting amid fears that the disinflation narrative has largely run its course for now.”
State Street Global Advisors APAC economist Krishna Bhimavarapu said the near 1 percentage point jump in headline CPI was largely due to electricity subsidies being exhausted.
“However, their extension till December means that energy prices may revert,” he said.
He added that construction work done, which rose nearly four times expectations on the back of a 17.5 per cent jump in the ACT, complicated the outlook further.
“With this, all eyes turn to the 2Q GDP, which is expected to show some rebound from last quarter. Expectations of rate cuts will be tempered by a stronger-than-expected print,” Bhimavarapu said.
Despite the spike, ANZ senior economist Adelaide Timbrell noted that along with electricity, the results were driven by volatile items, such as holiday travel and accommodation and fuel.
“We expect the spike in holiday travel and accommodation prices to fade out of data quickly,” Timbrell said. “The RBA’s August Statement of Monetary Policy including liaison commentary on consumers that ‘price-sensitivity remains a recurrent theme’.”
AMP economist My Bui stated that the data may present a small upside risk to AMP’s trimmed mean inflation forecast of 0.7 per cent (QoQ) and 2.6 per cent (YoY) for the September quarter.
Given how the monthly CPI indicator “is a very noisy report that has given false signals before”, Bui stated that AMP’s rate cut forecast remains unchanged, with cuts still expected in November, February and May, following the release of the full quarter inflation report.
