Australia’s headline inflation rate fell for a fourth consecutive month in July, but persistent underlying price pressures have kept open the prospect of another interest rate rise in September.
The Consumer Price Index rose 3.5 per cent over the year to July, down from 3.8 per cent in June and a recent peak of 4.6 per cent in March. It was the lowest annual headline rate since November last year.
Yet the closely watched trimmed mean measure remained unchanged at 3.6 per cent, above the Reserve Bank’s 2 to 3 per cent target band. Underlying prices rose 0.5 per cent during July, a result that offered the central bank less reassurance than the headline figure.
The CPI rose 1 per cent in original terms during the month and 0.6 per cent after seasonal adjustment, according to the ABS.
The figures prompted an immediate rise in the Australian dollar as financial markets priced in a greater chance that the Reserve Bank could lift the cash rate when its board meets on September 28 and 29.
The bank left the cash rate at 4.35 per cent this month after three increases totalling 75 basis points this year. Minutes released this week showed several board members believed further tightening could be required if inflation risks materialised. The board has said inflation is not expected to return to around the midpoint of its target until late 2027.
The July result presents the bank with a mixed picture. Headline inflation is retreating, helped by a 1.6 per cent monthly fall in electricity prices, but domestic price pressures remain elevated.
Non-tradable inflation, covering goods and services influenced mainly by domestic conditions, was 4.4 per cent over the year. Tradable inflation, which is more exposed to international competition and prices, was considerably lower at 1.7 per cent.
Housing remained the largest contributor to annual inflation, adding about 1.1 percentage points to the national rate. Housing costs rose 5 per cent over the year, led by a 5.7 per cent increase in new dwelling prices, a 3.6 per cent rise in rents and a 6.1 per cent increase in electricity prices.
The annual electricity increase largely reflected the expiration and timing of government rebates, despite prices falling during July. New home prices continued to rise as builders passed higher labour and material costs to buyers.
“Inflation has come down considerably, it’s already substantially lower than forecast at Budget time, but we know it’s still too high and it will bounce around in the coming months on its way back to the target range”
Fuel prices moved in the opposite direction. Automotive fuel rose 7.5 per cent during July following three consecutive monthly falls, reflecting higher world oil prices and the partial withdrawal of federal fuel excise relief.
Treasurer Jim Chalmers described the decline in headline inflation as “a promising result in the face of all of this global uncertainty but we know people are still under pressure”.
“Inflation has come down considerably, it’s already substantially lower than forecast at Budget time, but we know it’s still too high and it will bounce around in the coming months on its way back to the target range,” he said.
Food and non-alcoholic beverage prices rose 3.2 per cent over the year. Meals out and takeaway food increased 4.5 per cent, with the ABS pointing to higher labour, ingredient and operating costs, including minimum wage increases that took effect on July 1.
Restaurant prices rose sharply during the month, including a 1.7 per cent increase in Sydney. Prices fell for several grocery items, including fruit and vegetables, breakfast cereals, coffee and tea.
Alcohol and tobacco prices rose 4.5 per cent annually, driven by an 11.1 per cent increase in tobacco. Clothing and footwear rose 4.9 per cent, while recreation and culture increased 2.6 per cent.
Every capital city recorded higher prices during July. Adelaide and Hobart had the largest monthly increases, both at 1.3 per cent. Hobart recorded the highest annual inflation rate at 4.5 per cent, followed by Adelaide at 4.4 per cent. Annual inflation was 3.2 per cent in both Melbourne and Sydney.
Chalmers said movements in fuel prices, energy rebates and the Middle East conflict had made inflation figures more volatile.
“We already had an inflation challenge in our economy but the war is making it worse,” he said. “While the initial impact from the conflict on inflation came from fuel, we’re now seeing it broaden into other areas of our economy like dwelling construction costs.”
The Treasurer said headline inflation had been above 6 per cent and rising when Labor took office, while underlying inflation had been about 5 per cent.
“We’ve made a lot of progress together in the economy, but there’s more work to do because people are still under pressure,” he said.
The Reserve Bank will receive the August CPI figures and further labour market data before making its September decision. The July figures reduce the immediate headline rate but leave the bank’s underlying inflation problem largely intact.
Support Independent Community Journalism
Dear Reader,The Indian Sun exists for one reason: to tell stories that might otherwise go unheard.
We report on local councils, state politics, small businesses and cultural festivals. We focus on the Indian diaspora and the wider multicultural community with care, balance and accountability. We publish in print and online, send regular newsletters and produce video content. We also run media training programs to help community organisations share their own stories.
We operate independently.
Community journalism does not have the backing of large media corporations. Advertising revenue fluctuates. Platform algorithms change. Costs continue to rise. Yet the need for credible, grounded reporting in a multicultural Australia has never been greater.
When you support The Indian Sun, you support:
• Independent reporting on issues affecting migrant communities
• Coverage of local and state decisions that shape daily life
• A platform for small businesses and community groups
• Media training that builds skills within the community
• Journalism accountable to readers
We cannot cover everything, but we work to cover what matters.
If you value thoughtful reporting that reflects Australia’s diversity, we invite you to contribute. Every donation helps us maintain the quality and consistency of our work.
Please consider making a contribution today.
Thank you for your support.
The Indian Sun Team
