Inflation hits highest level in over a year
The monthly Consumer Price Index (CPI) indicator rose 2.8% in the 12 months to July 2025, according to the latest data from the Australian Bureau of Statistics (ABS).
"The 2.8% annual CPI inflation to July was up from 1.9% to June. This is the highest annual inflation rate since July 2024, following several months of easing inflation," ABS head of prices statistics Michelle Marquardt said.
The largest contributors to this rise were housing (up 3.6%); food and non-alcoholic beverages (up 3.0%); and alcohol and tobacco (up 6.5%).
Annual trimmed mean inflation was 2.7% to July, up from 2.1% to June.
The CPI excluding volatile items and holiday travel measure rose 3.2% in the 12 months to July, compared to a 2.5% rise in the 12 months to June.
State Street Global Advisors APAC economist Krishna Bhimavarapu says the higher-than-expected reading will cool expectations for the Reserve Bank of Australia (RBA) to deliver another interest rate cut soon.
"Today's near full percentage point jump in headline CPI is largely the impact of higher electricity prices as households used most of the available subsidies. Separately, construction work done rose nearly four times the expectations on the back of a 17.5% jump in ACT," Bhimavarapu says.
"The intricacies of the data remain complex, and the water is likely to remain muddy for longer. With this, all eyes turn to the Q2 GDP, which is expected to show some rebound from last quarter. Expectations of rate cuts will be tempered by a stronger than expected print."
Betashares chief economist David Bassanese says the "absolute shocker" data has crushed hopes of a September cash rate cut.
"The biggest disappointment is the fact that annual trimmed inflation has rebounded from an encouragingly low 2.1% in June to an ugly 2.7% in July," he says.
"The immediate monetary policy implication is to likely remove any chance of an RBA interest rate cut at the September policy meeting. The ongoing volatility in the annual trimmed mean measure of inflation from the monthly CPI reports also once again justifies the RBA decision not to cut rates in July and instead wait for evidence of easing inflation in the more reliable quarterly report later that month."
Bassanese said despite the shock, this data does not entirely rule out further RBA rate cuts.
"It's still quite possible that the RBA cuts rates in November, though it's no longer the done deal we previously believed. It will, as was the case in August, come down to the next quarterly CPI report due in late October," he said.
"If annual trimmed mean inflation only holds steady at 2.7% in the September quarter report, a Melbourne Cup rate cut could be a long shot. My expectation that annual trimmed mean inflation will drop to 2.5% - or at worst 2.6% - however, still makes a rate cut the favourite."
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