Sticky Inflation Lifts Risk of RBA Rate Hike in September

July CPI surprised to the upside and the RBA's preferred inflation measure has now been stuck at 3.6% for three straight months.

Australia's July inflation reading has come in hotter than most economists expected, reigniting concern that the Reserve Bank of Australia (RBA) could raise the official cash rate once more before the year is out. For borrowers already carrying the weight of rate increases earlier in 2026, the data is unwelcome news — and the timing is sharp, arriving just weeks before the RBA's September board meeting.

ABC News reports that the Consumer Price Index rose 3.5% in the 12 months to July, easing from 3.8% in June but landing above the 3.2–3.3% range most bank economists had pencilled in. The headline figure was slightly higher than the 3.3% predicted by many economists. On a monthly basis, MPA Australia reports the CPI rose 1.0% — the fastest single-month rise in four months and ahead of the 0.8% consensus forecast.

The result that matters most to the RBA is the trimmed mean — its preferred measure of underlying inflation, which strips out volatile items like fuel. That figure held at 3.6% year-on-year for the third consecutive month. The monthly trimmed mean rose 0.5%, prompting AMP economist My Bui to warn that, annualised, the figure produces "3.6 to 3.8 per cent — just way too far from the RBA's target" band of 2.5 to 3%.

"This inflation seems not to move at all. It is still stuck around that really high range," Bui said.

What Is Driving Inflation?

Housing was the largest single contributor to annual inflation, rising 5% as builders continued to pass on elevated costs for materials and labour. Food and non-alcoholic beverages rose 3.2% over the year, driven largely by dining out and takeaway meals, which climbed 4.5%.

On fuel, the ABS's head of price statistics Rachel McCririck noted that automotive fuel prices jumped 7.5% on a monthly basis in July after falling for three straight months. "This was driven by higher world oil prices and the partial unwinding of the federal government's fuel excise relief measures in July," McCririck said. With the full fuel excise cut ending in August, Treasurer Jim Chalmers warned further upward pressure is likely in the next CPI reading before moderating.

MPA Australia reports that the minutes of the RBA's August board meeting, released the day before the CPI data, confirmed the board did not consider a rate cut when it held the cash rate at 4.35%. The minutes stated the board "will continue to do what it considers necessary to achieve that outcome, including increasing the cash rate target if upside risks materialise."

Deputy governor Andrew Hauser separately flagged the global AI investment surge as a further inflationary risk. "If those upside risks to inflation crystallise and we don't see inflation coming down we'll have to raise interest rates again," Hauser warned. The minutes also cited the ongoing Middle East conflict as a risk to fuel and food costs, and rapid data centre expansion as a strain on labour and construction markets.

What This Means for Borrowers

The RBA's next rate decision falls on 29 September 2026, and July's CPI print is the final inflation reading before that meeting.

David Bassanese, chief economist at Betashares, described the result as "an unfortunate kick in the guts for an already ailing economy." He put the probability of a September rate hike at "at least 30 to 40 per cent," noting the RBA may also choose to wait for the next monthly inflation report, due 30 September — one day after the September meeting — before acting. "At this stage I still anticipate the RBA will hold fire. That said, the risk of an RBA rate hike next month is now at least 30 to 40 per cent and mortgage holders are in for a nervous wait," he said.

Not all economists agree on a hike. Callam Pickering, APAC economist at Indeed, said he no longer expected another rate rise this year, though he acknowledged the RBA remained hawkish and that the next move was "still more likely to be up than down."

Rate forecasts from all four major banks already position the cash rate as having peaked, with none expecting a cut before at least 2027, MPA Australia reports. Separately, Westpac's Leading Index of economic activity edged higher for a second straight month in July, with the six-month annualised growth rate lifting to -0.2% from -0.4% in June — suggesting the economy is stabilising rather than deteriorating further.

For variable-rate borrowers, now is the time to review your home loan. If rates rise again, those on standard variable products could face repayment increases with limited warning. Our refinance comparison hub can help you see what rates are available in the market, and our repayment calculator lets you model the effect of a further 0.25 percentage point increase on your monthly repayments.

Borrowers on fixed rates expiring in the next six to twelve months should be reviewing their options early rather than rolling onto whatever variable rate their existing lender offers. MPA Australia also notes that national home prices have fallen for four consecutive months, which HSBC chief economist Paul Bloxham said could dampen household spending and indirectly support the RBA's inflation task — but for borrowers with equity concerns, a potential rate rise on top of softening values is a risk worth taking seriously now.

Read the full ABC News report.