Australia’s annual inflation rate eased in July, but the latest figures have increased concerns that the Reserve Bank could raise interest rates again.
Data released by the Australian Bureau of Statistics on Wednesday showed the Consumer Price Index rose 3.5 per cent in the 12 months to July, down from 3.8 per cent in June. However, the result was higher than the 3.3 per cent forecast by many economists.
The bigger concern for the Reserve Bank of Australia is underlying inflation. The trimmed mean measure, which removes some of the most volatile price movements, remained at 3.6 per cent for a third consecutive month.
That measure is closely watched by the central bank because it provides a clearer indication of persistent price pressures.
Housing was the biggest contributor to inflation in July, with prices in the category rising 5 per cent over the year. Food prices also increased, with annual food inflation reaching 3.2 per cent, driven in part by higher costs for restaurant meals and takeaway food.
Fuel prices were another major factor. Automotive fuel prices jumped 7.5 per cent during July after falling for the previous three months.
The increase came as international oil prices rose and the federal government’s temporary fuel excise relief was partly unwound.
The latest figures have created a difficult situation for households and borrowers. Inflation is moving lower, but it remains above the Reserve Bank’s target range of 2 to 3 per cent.
The RBA left its cash rate unchanged at 4.35 per cent at its August meeting. However, minutes released earlier this week showed that policymakers had discussed the possibility of another increase if inflation risks remained elevated.
Economists are now divided over what the central bank will do next. Some believe a September rate increase is possible, while others expect the RBA to wait for additional information on employment, economic growth and inflation before making another move.
The next scheduled RBA interest rate decision is on September 29.
For Australians with mortgages, the latest inflation report is unlikely to provide the immediate relief many had hoped for. A further increase in borrowing costs could put additional pressure on household budgets at a time when living expenses remain elevated.
