Australian Inflation Rate Surges to 3.5% in July

Australia's inflation rate for July was higher than forecast at 3.5%, according to data released by the Australian Bureau of Statistics (ABS). The result is significantly above the Reserve Bank's target band of 2-3% and may lead to another potential interest rate rise.

The trimmed mean, the Reserve Bank of Australia's preferred measure, held at 0.8% in July and 3.6% on an annual basis, which was above expectations for a fall to 3.5%. AMP chief economist Shane Oliver said Wednesday's inflation figures were 'way too high' and reinforced the case for another interest rate hike.

The largest contributors to annual inflation were housing (+5%), food and non-alcoholic beverages (+3.2%), and recreation and culture (+2.6%). New dwellings prices rose 5.7% in the 12 months to July, as builders passed on higher costs for materials and labour. Fuel prices also rose 7.5%, driven by higher world oil prices.

Economist Shane Oliver argued that the drop in annual inflation painted a misleading picture because it was mostly driven by a high inflation reading from a year earlier dropping out of the calculation, rather than a real easing in price pressures.