Australian Inflation Rises to 3%, But RBA Still Expected to Cut Rates

Highlights:

• Australia’s CPI rose to 3.0% in August, the highest in over a year.
• Electricity costs jumped 24.6%, skewed by rebate withdrawals.
• Core inflation fell to 2.6%, keeping hopes of RBA rate cuts alive.

Headline inflation back at target band

Australia’s monthly consumer price index rose to 3.0% in August, the highest level in 13 months and slightly above market expectations of 2.9%. The uptick placed inflation once again at the ceiling of the RBA’s desired 2–3% range. At the time of writing, the S&P/ASX 200 was down 1.10% as investors digested the surprise uptick.

The jump was largely driven by a 24.6% rise in electricity costs, attributed to the phasing out of state government rebates in Queensland, Western Australia, and Tasmania. Economists noted that this surge reflects one-off policy changes rather than a broad-based acceleration in prices.

Core inflation moderates

Stripping out volatile items, core inflation eased to 2.6% in August from 2.7% in July. This trimmed mean measure suggests underlying price pressures remain contained. More than 48% of goods and services tracked by the CPI are now rising at less than 2% annually, while only 36% show growth above 3%.

Housing costs, however, remain elevated at 4.5%, up from 3.6% the previous month. Food, beverages, and tobacco also added to price growth, with eggs and coffee climbing due to supply disruptions. On the other hand, prices for small appliances, men’s clothing, international travel, and books all fell.

RBA’s policy outlook

The RBA has already lowered interest rates three times since February and had projected inflation to be around 2.5% in the September quarter. While the latest data overshot that estimate, most economists still expect further monetary easing in November, arguing that underlying inflation remains soft.

The central bank is expected to stay cautious, balancing the need to support economic growth with ensuring inflation doesn’t drift higher.

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