Australia Core Inflation Hits 3.6% Increasing Rate Hike Risks

Australia's annual headline inflation fell to 3.5% in July, the lowest level in eight months, but remained above the 3.3% consensus forecast. Data from the Australian Bureau of Statistics showed that core inflation, measured by the trimmed mean, held steady at 3.6%, exceeding economist estimates of 3.5% and remaining above the target band of 2-3%.

Housing served as the primary driver of annual inflation, rising 5.0% due to a 5.7% increase in new dwelling prices. Other significant contributors included food and non-alcoholic beverages, which rose 3.2%, and recreation and culture, which rose 2.6%. Automotive fuel prices surged 7.5% in July alone, driven by higher global oil prices and the partial removal of federal fuel excise relief.

Treasurer Jim Chalmers described the four-month moderation as a promising result, though he acknowledged that inflation remains too high. The Reserve Bank of Australia has maintained a cash rate of 4.35% over its last two meetings, but August minutes reveal internal debate over preemptive hikes to counter upside risks. Traders now price a 78% chance of another rate increase by December as the central bank monitors a loosening labor market and awaits second-quarter gross domestic product data.