RBA Rate Hike Odds Soar as Australia Sees Surprise Inflation Surge

The Reserve Bank of Australia (RBA) is facing pressure to raise interest rates after the release of higher-than-expected inflation data for July. The Australian Bureau of Statistics reported a monthly Consumer Price Index (CPI) rise of 1.0% in July, exceeding economist forecasts of 0.8%. Fuel prices surged by 7.5% month-on-month, while holiday travel expenses contributed to the increase.

The trimmed mean CPI, the RBA's preferred measure of core inflation, rose 0.5% m/m, its largest monthly increase in a year. This brings the annualised core rate to 3.6%, which is above the RBA's target of 3.3% by late 2026.

Market-implied odds for a 25 bps RBA rate hike at the September meeting jumped from 17% to 27%, with an 80% probability priced in for a rate increase by February 2027. The Australian Dollar (AUD) strengthened 0.1% to $0.7171 in response.