Interest Rate Hikes Loom as Underlying Inflation Remains Stubborn

Australia's mortgage holders are facing ongoing uncertainty about interest rates, despite a slight easing in headline inflation. The Consumer Price Index rose 3.5 per cent over the 12 months to July 2026, down from 3.8 per cent in June. However, underlying price pressures remain stubbornly high at 3.6 per cent annually.

This has left the Reserve Bank of Australia (RBA) facing a difficult decision about whether to raise interest rates again. The bank has already tightened monetary policy substantially this year with three increases taking the cash rate to 4.35 per cent. While keeping rates steady in August provided some breathing room for borrowers, the persistence of underlying inflation makes an early interest rate reduction more challenging.

The RBA is closely watching the persistence of underlying inflation, which could lead to further interest rate hikes if it remains above target. The bank's decision will have significant implications for Australia's housing market, where higher borrowing costs are already putting pressure on property prices and household affordability.