CBA’s Harry Ottley said the July monthly inflation report, which came in above expectations, shouldn’t be too much cause for alarm. (Source: CBA/Getty/ABS)
Commonwealth Bank (CBA) has called for calm after Australia recorded a “shock” inflation result. The consumer price index (CPI) has been on a downward trend since it peaked in December 2022, and this has largely helped the Reserve Bank (RBA) usher in three interest rate cuts in 2025.
However, the Australian Bureau of Statistics (ABS) revealed inflation had jumped 2.8 per cent in the 12 months to July from 1.8 per cent a month earlier, which was the highest annual rate since July last year. While the result has sparked fears a spooked RBA wont provide more rate cuts, CBA’s Harry Ottley said it’s unlikely to move the central bank’s dial.
“The RBA has previously cautioned against overreacting to monthly CPI volatility, and [the] data is unlikely to shift its cautious, data-dependent stance,” the economist said.
The ABS publishes monthly and quarterly data, and the Board typically relies on the latter to inform its decisions on the cash rate, which is currently at 3.60 per cent.
The three-monthly readout provides a much broader and fuller snapshot of the country’s fight against inflation, whereas the month-to-month reports can fluctuate more wildly.
While Ottley said July’s monthly CPI result was “stronger than we and the market had anticipated”, he said it shouldn’t be too much cause for alarm.
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“Much of the surge can be explained by quirks in the timing of electricity rebates and holiday travel. These are unlikely to persist,” he said.
Those rebates saw New South Wales and the ACT get their cash boosts in July instead of August, which gave residents more money to spend during that month.
The economist said seasonal travel costs, which are expected to change in the coming months as we come into spring and summer, could also be to blame for the “surprise spike”.
This was backed up by Treasurer Jim Chalmers, who put the CPI increase down to “volatile and one-off factors”.
“We know monthly inflation figures can jump around and are less reliable than the quarterly figures because they don’t compare the same basket of goods and services from month to month,” he said.
Commonwealth Bank is maintaining the RBA will likely cut interest rates again in November by 0.25 per cent because it will have another quarterly inflation report to rely on by then.
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The RBA is next meeting in September, and experts largely believe it will decide to hold the cash rate, especially after Wednesday’s CPI revelation.
“[The] shock CPI report does not necessarily rule out further RBA rate cuts,” Betashare chief economist David Bassanese said.
Inflation spiked dramatically in the 12 months to July, but experts believe it’s not cause for alarm. (Source: ABS)
“It’s still quite possible that the RBA cuts rates in November, though it’s no longer the done deal we previously believed.”
VanEck head of investments and capital markets Russel Chesler agreed the earliest possible time we’ll see another rate cut was towards the end of the year.
“This inflation spike, combined with the recency of the last rate cut and continued strength of the labour market, reinforces our expectation that another rate cut is unlikely before November,” he said.
Oxford Economics head of macroeconomic forecasting Sean Langcake believed the September quarterly inflation report will be “fairly benign”, which could “pave the way for a November rate cut”.
As for the major banks:
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ANZ: A 25 basis point cut will come in November, taking the cash rate to 3.35 per cent
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CBA: A 25 basis point cut in November
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NAB: A 25 basis point cut in November and another in February, taking the cash rate to 3.10 per cent by the beginning of 2026
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Westpac: A 25 basis point cut in November, and another in February
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