Australia’s July inflation surprise has disrupted expectations of a September rate cut. The Reserve Bank is now expected to wait for clearer quarterly data before adjusting policy.
The Reserve Bank of Australia (RBA) is set to maintain interest rates in September following an unexpected surge in inflation, as revealed by the latest monthly Consumer Price Index (CPI) report. The inflation reading has introduced uncertainty into monetary policy forecasts, prompting analysts to reassess the timing of future rate adjustments.
The Australian Bureau of Statistics (ABS) reported a significant increase in headline annual inflation for July, reaching 2.8%—up from 1.9% in June. This figure exceeded all major market forecasts, shaking earlier expectations that the central bank would proceed with a rate cut in the coming month.
Sharp Rise in Electricity and Travel Costs Fuels Inflation Surprise
According to the ABS, the July CPI surge was largely driven by a 13.0% increase in electricity prices, a rise attributed to the withdrawal of subsidies and higher default market offers. The timing of rebates in New South Wales and the Australian Capital Territory amplified the monthly increase, according to analysis by IFM Investors’ Alex Joiner. Travel prices, which comprise more than 6% of the CPI basket, also exceeded forecasts, further contributing to the overall inflation climb.
The more policy-relevant trimmed mean inflation also registered a marked increase, rising by 0.6% to 2.7%. This aligns more closely with the quarterly measure typically used by the RBA to guide decisions. While some economists noted that the first month of each quarter is generally weighted towards goods prices—and therefore more volatile—analysts at Westpac and the Commonwealth Bank of Australia (CBA) acknowledge the reading was stronger than anticipated.
Monthly CPI was weaker than markets expected and the trimmed mean measure slips under the midpoint of the RBA’s target and SMP forecast. This is further support for the Bank if it wanted to move on rates in July. pic.twitter.com/YdpTDFtYuK
— Alex Joiner 🇦🇺 (@IFM_Economist) June 25, 2025
Rate Cut Now Unlikely Before November, Say Analysts
In response to the July figures, Westpac senior economist Justin Smirk stated that the surprise inflation jump presents “an upside risk” to their September quarter CPI forecasts. According to Westpac, this reduces the likelihood of any interest rate adjustment next month, with the central bank now expected to wait for the full quarterly data due in late October.
Echoing this view, CBA economist Harry Ottley noted that while the RBA may not be alarmed by a single data point, the latest figures reinforce a cautious, data-dependent approach to monetary policy. “The implied preference for a quarterly cadence of cuts will remain for now,” Ottley wrote, suggesting that November may now be the earliest opportunity for a 25 basis point reduction.
This latest development signals a recalibration in expectations regarding the pace of monetary easing, reinforcing the RBA’s commitment to a measured policy path driven by complete and consistent data.
