Inflation Rate Stays Above Target, Interest Rate Hikes Loom

Australia's inflation rate continues to lag behind the Reserve Bank of Australia (RBA) target, with figures remaining above 2-3 per cent a year. Headline inflation dropped to 3.5 per cent from 3.8 per cent over the 12 months until July, but the trimmed mean inflation rate remained unchanged at 3.6 per cent.

KPMG chief economist Brendan Rynne said Wednesday's figures proved problematic for the central bank, which held interest rates in August. 'Today's data supports the view that without policy action we may be in for a long, costly grind to get inflation under control and the Reserve Bank may have missed an opportunity at the last board meeting to get ahead of the game by raising rates,' he said.

Deloitte Access Economics partner Stephen Smith labelled July's figures as 'a hot mess'. The result was also messy, reflecting policy-led changes to electricity prices and the partial restoration of the fuel excise. For households, softer inflation will be welcome, but it should not be confused with an improvement in the cost-of-living crisis.

The Australian dollar jumped after a hotter-than-expected inflation figure, climbing to 71.7 US cents almost immediately. Experts predict a rate hike between now and the end of the year, with some suggesting it could happen as early as next month or at the latest by November.