Australia's inflation in July was significantly higher than expected, raising fears that the Reserve Bank may hike interest rates for the fourth time this year, potentially delivering a heavy blow to millions of mortgage holders, as reported by infohub.kz.
According to the Australian Bureau of Statistics, consumer prices rose 3.5% annually, down from 3.8% in the previous month, but well above the 3.3% forecast by economists. The Reserve Bank's preferred underlying inflation measure, which excludes the most volatile prices, remained steady at 3.6%, also exceeding expectations.
Brendan Rynne, KPMG's chief economist, said that today's data suggests that without policy action, getting inflation under control could be a long and costly grind. He believes the Reserve Bank may have missed an opportunity at its last meeting to get ahead of the curve by raising rates.
This disappointing news comes a day after the release of the minutes from the Reserve Bank's latest meeting, where board members expressed uncertainty about reaching the 2.5% inflation target by the end of next year and indicated they would act if price pressures did not ease as expected. While the decision on 11 August to hold the cash rate at 4.35% was unanimous, several members considered another hike this year "quite possible."
Many economists, including those who had ruled out further increases, said the latest ABS figures heightened the chance of a November hike. NAB analysts declared their call for no further hikes was "under review." Phil O'Donaghoe, chief economist at Deutsche Bank, now expects the RBA to move as early as September, describing underlying price growth as "intolerably high." He said the July CPI leaves little room for the RBA to do anything other than follow through on its hawkish stance, and the earlier it does, the better.
According to ABS data, petrol prices rose 7.5% in July after three consecutive monthly declines, as the fuel excise relief ended. My Bui, an economist at AMP, said "housing remains Australia's chronic issue," with home building costs up 5.7% and rents up 3.6% in the year to July. Bui still predicts a November hike, but says a September hike is certainly plausible.
The ABS attributed the rise in construction costs to project home builders raising base prices to pass on higher labour and materials costs over the year. Additionally, takeaway and restaurant meal prices climbed 4.5% annually, driven by higher operating costs including ingredients and the minimum wage increase from 1 July.