Inflation eases less than expected, making another interest rate hike more likely

Rudi Suardi/Getty Images Easing inflation may give mortgage holders a reprieve on further repayment increases for now – but maybe not for long.

The consumer price index (CPI) rose 3.5% in the year to July, down from 3.8% in the year to June.

But that was a smaller fall than had been predicted .

The Reserve Bank of Australia’s preferred measure of underlying inflation, the trimmed mean , was unchanged at 3.6%. (The trimmed mean is the average rate of inflation after “trimming” away the items with the largest price rises or falls, leaving the weighted average of the middle 70% of items.) The prices of what the Australian Bureau of Statistics (ABS) terms “ non-discretionary ” purchases – such as food, shelter, healthcare, car maintenance, school fees or compulsory insurance – rose by 3.7%.

This compares to the latest annual increase in wages of 3.2%.

This means wages are still lagging price increases that are hard to avoid, adding to cost of living pressures on Australian households.

What’s changed? The latest data showed headline annual inflation benefited from lower growth in electricity prices (part of the “housing” group shown in the chart below, which shows the breakdown of cost changes within the CPI).

The annual increase in the cost of electricity fell back from 22.4% in June to 6.1% in July, reflecting the timing of rebate payments in 2025.

Fresh vegetables and eggs cost less in July 2026 than in July 2025.

But the cost of meals out and takeaways was up 4.5%, reflecting higher costs of ingredients and the increase in the minimum wage .

There were also strong increases in some other labour-intensive services, such as childcare (up 7.3%), hairdressing (up 4.4%) and education (up 4.8%).

New dwelling prices were up 5.7% as builders passed through higher labour and material costs.

The surge in construction of data centres is one factor that’s continuing to push up construction costs , which the Reserve Bank is closely watching .

How interest rates factor in Interest rates are not included as part of the “ basket of goods and services ” that measure inflation.