SYDNEY — Australia's Consumer Price Index rose 3.5% in the 12 months to July, slowing from 3.8% in June but still coming in above the market forecast of 3.3%, the Australian Bureau of Statistics said Wednesday. The result marks a deceleration in annual inflation from the prior month, even though the pace of that slowdown was smaller than economists had expected.
CPI Data and Underlying Pressures
On a monthly basis, the CPI rose 1.0% in original terms, exceeding forecasts of a 0.8% increase. The trimmed mean, the RBA's preferred gauge of underlying inflation because it strips out volatile items, rose 0.5% for the month, the largest monthly increase in a year and well above a forecast of 0.3%. Annual trimmed mean inflation held at 3.6%, unchanged from June.
Automotive fuel prices rose 7.5% in July after falling for three consecutive months, which ABS head of price statistics Rachael McCririck attributed to higher world oil prices and the partial unwinding of the federal government's fuel excise relief measures. Housing remained the largest contributor to annual inflation at 5.0%, though this was down from 6.8% in June. Economists had expected a sharper annual slowdown partly because a large price increase from July last year was due to drop out of the 12-month calculation; the smaller-than-expected easing suggests underlying price pressure remains firmer than anticipated.
RBA Stance and Market Reaction
The Reserve Bank of Australia (RBA) has held its cash rate at 4.35% for a second consecutive meeting, after three rate increases earlier this year. Minutes from the RBA's August meeting, released a day before the inflation data, showed the board had discussed a 25-basis-point increase before deciding to hold. Governor Michele Bullock has said a further rate rise remains "quite possible."
Following Wednesday's data, traders raised the probability of a rate hike at the RBA's September 28-29 meeting to 27%, from 17% beforehand, with an 80% probability now priced in for an increase by February 2027, according to rate futures. The Australian dollar rose about 0.1% to around $0.717, while the 10-year government bond yield traded near 5%, close to multi-week highs, as markets weighed the odds of renewed policy tightening.
The RBA is expected to assess further data, including labour market figures, before its September meeting.
Further reading and useful links
Reader questions
Frequently asked questions
What was Australia's inflation rate in July 2026?
Australia's Consumer Price Index (CPI) rose 3.5% in the 12 months to July, slowing from June's 3.8% but still coming in above the market forecast of 3.3%.
Why did Australian inflation exceed economist expectations?
The higher-than-expected inflation was driven primarily by a 7.5% jump in automotive fuel prices—linked to global oil prices and the unwinding of government excise relief—as well as persistent underlying pressures in housing costs.
How did the market react to the Australian inflation data?
Traders increased their bets on a Reserve Bank of Australia (RBA) rate hike in September to 27%. The Australian dollar rose slightly to $0.717, and government bond yields traded near multi-week highs.
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