Upside inflation surprise pressures RBA to hike

This week’s Reserve Bank of Australia (RBA) minutes were unapologetically hawkish, with inflation risks tilted to the upside and the RBA considering a rate hike at its August meeting.

Wednesday’s CPI inflation data from the Australian Bureau of Statistics (ABS) confirmed the RBA’s caution, with headline CPI at 3.5% (versus 3.2% expected) and the policy-relevant trimmed mean inflation at 3.6% (versus 3.5% expected):

The largest contributor to annual inflation in July was Housing, which rose by 5.0%. The next largest contributors were Food and non-alcoholic beverages, rising 3.2%, and Recreation and culture, which rose 2.6%.

“Housing rose by 5.0% in the 12 months to July due to rising costs for New dwellings. New dwellings prices rose 5.7% in the 12 months to July as builders passed on higher costs for materials and labour”, Rachael McCririck, ABS head of price statistics, said.

The following charts from Alex Joiner, chief economist at IFM Investors, summarise the data:

As illustrated above, trimmed mean inflation in July was above the RBA’s latest forecast. The quarterly growth rate has also reaccelerated.

“These data do nothing to suggest that the RBA’s September board meeting is anything but live”, Joiner wrote on X (Twitter).