By Lucinda Jerogin, Associate Economist at CBA
- Australian headline inflation surprised to the upside, sharply rising by 2.8%/yr in July. However, electricity and travel prices contributed to the majority of the forecast miss and will likely unwind in coming months.
- The Minutes of the August Monetary Policy Board meeting highlighted a shift in focus for the RBA towards the labour market and away from inflation.
- The global calendar was lighter. US economic growth came in stronger than expected.
- The week ahead brings Q2 25 GDP in Australia. Partial data points to a 0.4%/qtr lift to take the annual rate to 1.5%. Home prices, building approvals, the goods trade balance, MHSI and the Labour Account are also due.
- Abroad markets will focus on Eurozone CPI and US non-farm payrolls.
There was a steady flow of economic data in Australia last week.
The July Monthly CPI garnered the most attention, surprising markets with a strong print. Headline inflation rose sharply to 2.8%/yr in July, well above our estimate (+2.0%/yr) and the market consensus (+2.3%/yr). The annual trimmed mean measure also rose materially, up to 2.7%/yr.
However, electricity and travel prices contributed to a ~55bp of the miss in our forecast and will likely unwind in coming months. Electricity prices rose much more than expected due to the timing of rebates in NSW and the ACT.
International travel and accommodation prices, a highly seasonal component of the CPI basket, were also much stronger than anticipated after a soft monthly print in July in the last two years.
In totality, the first month of the quarter is overweight on goods and provides less informational content than subsequent months. For this reason, the RBA is unlikely to be overly concerned about the surprisingly strong print.
In fact, the Minutes of the August Monetary Policy Board meeting released on Tuesday (prior to the July CPI), highlighted the shift in the RBA’s focus towards the labour market and away from inflation.
Much of 2025 had been centred on ensuring inflation returns sustainably to the mid-point of the RBA’s target band. With that goal looking largely secured, the Board’s focus has shifted to downside risks to the labour market.
We continue to expect the RBA to cut the cash rate by 25bp in November. But the Minutes reinforced the data dependent nature of the Board. A deterioration in the labour market or a faster and steeper moderation in CPI could speed up cuts.
The key data between now and the 29-30 September meeting are the August CPI24/09, Q2 25 GDP 03/09 and the labour force survey 18/09.
Other economic releases began to lay the groundwork for next week’s Q225 GDP. Partial data on construction activity and capex had little implications for our expectation for the national accounts.
The volume of construction work done lifted by a stronger than anticipated 3.0%/qtr in June. However, a reacceleration in engineering work drove the quarterly upturn and was predominantly due to a large gas project in the Northern Territory being commissioned in April.
The surge in engineering work should have already been counted in the national accounts data due to methodological differences between the two releases.
In addition, Thursday’s capex survey printed broadly in line with our forecasts. The total volume of capex rose marginally in Q225, up 0.2%/qtr. This followed a fall of 0.2% in Q1 25 and was the third consecutive quarter of weak business investment.
Given construction activity and capex data, at this stage we have a ~0.4%/qtr lift in GDP in Q2 25 pencilled in. We will finalise our estimate following the release of the Balance of Payments and government finance statistics on Tuesday.
Offshore, the economic calendar was lighter. News out of the US continued to make headlines. The independence of the Fed was called into question when President Donald Trump fired Federal Reserve Governor Lisa Cook, citing mortgage fraud as the cause for dismissal. However, markets were largely unfazed by another dent in the central bank’s independence. Also in the US, GDP data came in stronger than expected printing at 3.3% annualised in the June quarter.
Turning our attention to the week ahead and the local schedule is jam packed.
Monday will see the release of dwelling prices, building approvals and business indicators. We expect dwelling prices to continue their upward trend as interest rate cuts flow through the market while building approvals are likely to see a dip following a surge last month. Business indicators are expected to point to weakness in inventories and company profits.
Tuesday will see the Balance of Payments release ahead of national account data on Wednesday and we expect new exports to add to GDP growth. We will finalise our estimate for GDP after this partial data.
Thursday centres on the goods trade balance and MHSI for July. We expect the goods trade balance will modestly improve in July, supported by commodity prices in Q225. The MHSI should continue to lift as the consumer recovery gains traction as we have seen in our internally generated data.
Abroad, markets will focus on US non-farm payrolls. The August figures will be closely watched to assess the state of the labour market following stronger than expected GDP this week.
