Housing Prices in Focus as RBA Weighs Next Rate Hike

Housing prices and construction costs are now at the center of Australia's inflation discussion, as economists say that they hold the key to the Reserve Bank's next interest rate decision.

The Australian Bureau of Statistics' latest consumer price figures showed a higher-than-expected 3.5 percent inflation rate in the year to July, making an interest rate hike more likely. However, housing accounted for nearly one-third of annual inflation despite making up only 21 percent of the CPI basket.

AMP economists My Bui and Diana Mousina stated that new dwelling purchases need to decrease by at least 0.25 percent month-on-month for the Reserve Bank to feel comfortable with inflation, as this category can quickly show progress in inflation.

RBA governor Michele Bullock has singled out construction costs as an area where cost pressures are flowing through from the Middle East to consumers and passing on to producers.