Australia’s July monthly consumer price index (CPI) indicator shocked markets with inflation climbing back to 2.8 per cent year-on-year.
With core measures also firming, this has left economists split on whether August data will show stabilisation or further signs of renewed price pressures.
The Australian Bureau of Statistics (ABS) reported that housing, electricity and food costs drove the July increase, with electricity prices up 13.1 per cent as government rebates were partly unwound.
The annual trimmed mean rose to 2.7 per cent, placing underlying inflation close to the midpoint of the Reserve Bank of Australia’s (RBA) 2–3 per cent target band.
Against this backdrop, Shane Oliver, AMP chief economist, said the August CPI indicator is expected to rise slightly to 2.9 per cent year-on-year, despite a 0.2 per cent monthly fall reflecting lower travel costs and broader electricity rebates.
Oliver also forecast trimmed mean inflation to ease to 2.6 per cent year-on-year.
Westpac senior economist Justin Smirk cautioned that base effects may push the annual rate higher despite a modest monthly gain.
“Westpac’s near-cast for the August monthly CPI indicator is a 0.1 per cent monthly rise, which due to base effects, would lift the annual rate from 2.8 per cent to 3.1 per cent,” he said.
“As always, there is a high degree of uncertainty around monthly estimates and so it is difficult to clearly define where the risks lie.
‘However, ongoing margin rebuilding by project home builders remains a clear upside risk.”
Meanwhile, CBA economist Harry Ottley forecast headline inflation to fall back to 2.7 per cent in August, following July’s unexpected jump.
“There is continued uncertainty around the timing of electricity rebates and how much persistently strong holiday travel price rises will unwind,” Ottley added.
The major bank predicted the annual trimmed mean to fall to 2.5 per cent, directly in line with the RBA’s target.
“If our forecasts are correct, it would imply a slightly stronger Q3 25 outcome than previously expected. We have upgraded our forecast to 0.7 per cent per quarter for trimmed mean and 0.9 per cent per quarter for headline CPI,” Ottley said.
He added that “there is limited room for material further disinflation” in CBA’s view.
“Economic growth has picked up; the labour market remains solid and there is evidence that this has translated to price pressures modestly picking up in the September quarter.
“We expect the RBA to cut the cash rate to 3.35 per cent in November, provided core inflation looks like it will settle near the midpoint.
“Further easing in 2026 would require a weaker labour market and softer recovery than currently expected,” Ottley said.
Moreover, NAB’s economics team highlighted the broader disinflationary trend despite July’s rebound, suggesting that the 2Q CPI data confirmed that underlying inflation has been around the midpoint for the “past couple of quarters”.
“We expect it to stay there, though some lingering risks remain,” NAB said.
“Trimmed mean inflation was 0.6 per cent qoq and 2.7 per cent yoy in 2Q. Underlying inflation pressures have moderated alongside the gradual rebalancing of the economy over the past couple of years.”
NAB further noted that cooling has been broad based over the period, with housing components driving another leg lower in the second half of 2024.
Domestic markets threatened by risks abroad, Bullock said
Appearing before the House of Representatives standing committee on economics on Monday, RBA governor Michele Bullock has warned that rising US tariffs and shifting global trade dynamics could unsettle markets, with flow-on risks for Australia via major partners such as China.
She said markets appear complacent, with little risk priced into equities or high-risk credit.
Domestically, Bullock said conditions remain strong, with underlying inflation at 2.7 per cent and forecasts suggesting it will stay within the 2–3 per cent band.
She credited higher rates with anchoring expectations after the 2022 inflation surge.
Employment has also held firm, with unemployment at 4.2 per cent and more than a million jobs added since 2022. Chief economist Sarah Hunter said the economy has entered a “cyclical upturn”, driven by private demand, rising real wages and Stage three tax cuts.
