Fuel Price Spike Dents Hopes of Early Rate Relief

The Reserve Bank of Australia (RBA) is facing renewed pressure to keep interest rates steady after a sharp mid-year inflation spike. ANZ Research forecasts a 0.8% jump in headline inflation for July, driven primarily by an 8% surge at the petrol pump and seasonal price hikes across domestic travel, clothing, and takeaway dining.

The steep fuel spike is projected to wipe out gains from lower power bills, which are expected to fall 2.5% following the rollout of the federal government's new default market offer on July 1. Trimming mean inflation, the RBA's preferred measure, is predicted to have jumped 0.34% in July, keeping annual core inflation at a sticky 3.5%.

ANZ economists warn that the high monthly figure will be 'uncomfortable' for the RBA and keeps a potential interest rate adjustment firmly on the table for its November board meeting. The big four banks have already priced in an inevitable drop in borrowing costs six to 12 months away, with top term deposit rates cut by CBA, Westpac, NAB, and ANZ.