Australia’s annual inflation has risen again, clouding prospects for rate cuts and raising doubts over whether underlying pressures are easing or stalling.
The monthly consumer price index (CPI) indicator rose 3.0 per cent in the 12 months to August 2025, according to the latest data from the Australian Bureau of Statistics (ABS).
Michelle Marquardt, ABS head of prices statistics, said the figure marked an uptick from 2.8 per cent in July – making this the highest annual inflation rate since July 2024.
The largest contributors to annual inflation were housing (+4.5 per cent), food and non-alcoholic beverages (+3.0 per cent), and alcohol and tobacco (+6.0 per cent).
When prices for some items change significantly, measures of underlying inflation (like the annual trimmed mean and CPI excluding volatile items and holiday travel) can give more insights into how inflation is trending.
“Annual trimmed mean inflation was 2.6 per cent to August 2025. This is down from 2.7 per cent to July 2025,” Marquardt said.
CPI excluding volatile items and holiday travel rose 3.4 per cent in the 12 months to August, compared to a 3.2 per cent rise in the 12 months to July.
On the back of this print, economists see a rate hold at next week’s meeting (30 September) as a near certainty, though the path beyond remains less clear.
ANZ head of Australian economics, Adam Boyton, said the major bank does not expect any change in the cash rate in the next board meeting, and retains the view of a cut in November.
“But these inflation data are likely to contribute to the recent shift in RBA tone,” Boyton said. “In her House of Representatives standing committee on economics remarks earlier this week, governor Bullock noted that ‘domestic data have been broadly in line with our expectations or if anything slightly stronger’.”
Boyton also noted that the latest flow of data (gross domestic product, employment, upcoming Q3 CPI) might start to challenge the “proposition that the economy needs rates much lower than they already are”.
While Commonwealth Bank of Australia (CBA) economists Harry Ottley and Trent Saunders stated they “remain comfortable” with their base case of a November cut, the duo noted that this would be a “terminal cash rate” of 3.35 per cent, and that the August data “suggests this is not a done deal and tension is building in the economic data”.
“The August monthly CPI was stronger than expected… partly owing to electricity and travel prices not unwinding as much as we had forecast,” CBA said. “More consequentially however, the underlying components suggest our suspicion that the inflationary pulse in the economy had firmed in 3Q 2025 is likely correct.”
Betashares chief economist David Bassanese said the August figures have “effectively killed off the last fleeting chance” of a September rate cut, but a Melbourne Cup Day cut is still a “firm favourite”, assuming a favourable Q3 print showing trimmed mean edging down to 2.6–2.7 per cent.
“Today’s numbers still keep that hope very much alive,” Bassanese said.
He added that electricity price volatility, amplified by shifting state and federal subsidies, was complicating the interpretation of inflation trends.
“Looking through the volatility to the extent possible, it does appear that the rate of decline in underlying inflation is levelling out at around the mid-point of the RBA’s 2 to 3 per cent target band,” Bassanese said and further added that housing costs and some services (such as insurance) are helping ease the inflation rate.
Some anticipate even less room for policy easing, with CreditorWatch chief economist Ivan Colhoun noting some of the August CPI components “did not print favourably, raising the risk of a 0.8 per cent 3Q quarterly trimmed mean print”.
Colhoun said the August print not only shut the door on a September cut, but also lowered the odds of moves in November and December, unless unemployment rises more sharply.
“For the time being, the improvement in inflation has stalled, if not is slightly reversing,” he said.
Echoing sentiments from his peers, HSBC’s chief economist, Paul Bloxham, described the monthly CPI as a noisy gauge that often adds more volatility than clarity. He believes the RBA will continue to place greater weight on quarterly measures rather than monthly.
“Today’s print was another choppy reading from the monthly CPI indicator,” he said. “The main story is that the RBA is likely to put only a low weight on any of these indicators.”
Bloxham stated that while the RBA will likely hold firm next week, the August figures add “a little more risk” that core inflation would not fall much further, thus increasing the risk of fewer rate cuts.
“Our central case is for two more 25 bps cuts in this easing phase – one in November and another in February 2026 – but we see the risk as tilted to fewer cuts than this,” Bloxham said.
