Australian Inflation Remains Sticky at 3.5% Amid RBA Concerns

Australia's inflation rate remained sticky at 3.5% in July, according to the latest data from the Australian Bureau of Statistics (ABS). Despite a slight easing from June's 3.8%, the figure was higher than economists' expectations for a sharper slowdown.

The Reserve Bank of Australia (RBA) is keeping a close eye on inflation, with its preferred measure of underlying price pressures - trimmed mean inflation - holding steady at 3.6% over the 12 months to July. This remains well above the central bank's 2%-3% target range.

Housing was the largest contributor to annual inflation, rising 5.0%, followed by food and non-alcoholic beverages at 3.2% and recreation and culture at 2.6%. The RBA left the cash rate unchanged at 4.35% in August, with Governor Michele Bullock warning that inflation remained too high to consider rate cuts.

Experts are divided on what this means for future interest rates. VanEck head of investments and capital markets Russel Chesler believes there will be at least one more RBA hike before the end of 2026 to temper inflation, citing continued wage pressures and broad-based increases across housing, food, and recreation.

Others, such as State Street Markets head of APAC macro strategy Dwyfor Evans, see this as a sign that further monetary tightening is possible, which could support the Australian dollar through relative interest rate expectations.