Housing Hinges on Rate Decision as Inflation Hits 3.5%

The Reserve Bank of Australia's next interest rate decision may hinge on housing, according to economists from AMP. The Australian Bureau of Statistics reported that inflation exceeded forecasts at 3.5% in the year to July.

Housing accounted for nearly one-third of annual inflation, despite making up only 21% of the Consumer Price Index basket. Economists My Bui and Diana Mousina said new dwelling purchases need to decrease to at least 0.25% month-on-month for the Reserve Bank to feel comfortable.

RBA governor Michele Bullock has highlighted the construction sector's cost pressures, which are being passed on from the Middle East to consumers. Building costs rose by 2.1% in the June quarter, with JP Morgan analyst Tom Ryan predicting elevated building cost pass-through to persist in the near term.