Inflation jump a threat to Reserve Bank cash rate cuts

A higher-than-expected jump in domestic inflation has weakened the case for more rate cuts.

Australian Bureau of Statistics data showed a jump in consumer prices, climbing from 1.9 per in the year to June to 2.8 per cent in July.

It is the highest annual inflation rate since July 2024 after months of easing, Michelle Marquardt, ABS head of prices statistics said.

The data prompted a chorus of doubt for a September from economists.

HSBC chief economist Paul Bloxham said while this was only one month’s worth of data, the upside surprise had been substantial.

“Today’s figures increase the risk that the RBA is close to the end of its easing phase,” he said.

Betashares chief economist David Bassanese said the report was an “absolute shocker” that crushed hopes for a rate hike in September, but said the Reserve Bank might still trim them in November.

AMP Deputy Chief Economist Diana Mousina also thinks a September rate cut is unlikely because of the data – driven by electricity and hotter price growth on consumer goods, holiday travel and new dwelling construction costs.

“We expect another rate cut in November when there will be two more inflation reads available so it’s too early to get worried about an inflation rebound,” said Mousina.

Capital Economics head of Asia-Pacific Marcel Thieliant said: “While most of the jump in headline inflation in July reflected volatile components that the RBA will ignore, underlying inflation also rebounded.”

The firm is still forecasting three cuts, eventually landing at 2.85 per cent, but thinks the RBA will take a “less expansionary stance.”

VanEck’s Russel Chesler said: “It is disappointing given the run we have had of easing inflation in the year to date.”

Chesler suggested another cut was unlikely before November.

State Street’s Dwyfor Evans said the RBA was more likely to hold in rates at its September.