Housing, electricity costs remain major contributors to consumer price inflation
Australia’s inflation rate surged to a 12-month high in August, with the Australian Bureau of Statistics (ABS) reporting on Wednesday that the monthly Consumer Price Index (CPI) rose by 3% over the year, up from 2.9% in July.
The uptick was slightly sharper than expected (the market consensus forecast was set at 2.9%), denting the hopes of anyone expecting another move from the Reserve Bank of Australia's (RBA) next Tuesday.
While base effects and government rebates played a role in some categories, the underlying momentum in price pressures – particularly in market services and housing – suggests inflation is proving stickier than anticipated.
Electricity prices drive upsurge
Electricity was one of the standout contributors to this inflation rebound.
Despite falling 6.3% in the month, the decline was less than economists had forecast, largely due to the staggered rollout of energy rebates across different states.
On a yearly basis, electricity prices have skyrocketed by 24.6%, driven by energy market volatility and a lag in the full impact of government subsidies.
The ABS noted that while rebates under the Commonwealth Energy Bill Relief Fund did start to flow in some states like NSW and ACT in August, others – such as Western Australia – won’t receive them until October.
Housing still a major contributor
New dwelling prices increased 0.4% in August, the same pace as in July. While modest, this was notably firmer than the declines recorded in late 2024 and early 2025.
Over the past 12 months, new dwelling costs were up 0.7%, thanks in large part to a rebound in construction costs as home builders scale back discounts and demand picks up.
Rents also edged up by 0.3% in the month and 3.7% over the year, although this was the slowest annual increase since November 2022.
While some moderation is expected as population growth stabilises and rental supply improves, forward-looking indicators such as advertised rents point to renewed pressure in coming quarters.
Core inflation provides mixed signals
The annual trimmed mean inflation – the RBA’s preferred core measure – eased slightly to 2.6%, down from 2.7% in July, bringing it well within the central bank’s 2-3% target band. However, increases in subcategories such as market services "suggest our suspicion that the inflationary pulse in the economy had firmed in Q3 2025 is likely correct", said CBA economist Harry Otley.
Market services inflation – which includes categories like insurance, restaurant meals, and vehicle services – likely rose 1.1% over the quarter, well above expectations.
“The quarterly rise was still firmer than we had forecast and will no doubt be a focus for the RBA,” Otley said.
What do the Big Four banks expect?
Today’s higher-than-expected inflation print justifies the hawkish stance taken by all four major banks, none of which expects the RBA to slash rates for the fourth time this year when the Monetary Policy Board convenes next Tuesday.
Here's where each of the Big Four currently stands:
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CBA: Still expects a rate cut in November, bringing the cash rate to a terminal 3.35%, but flags that today’s data increases the risk the RBA could hold longer.
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Westpac: Has pulled back its expectations for near-term easing, citing stickier inflation in services and persistent wage growth.
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ANZ: Now forecasts the RBA to stay on hold through the remainder of 2025 unless there’s a meaningful deterioration in labour market data.
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NAB: Expects one rate cut before year-end, with timing increasingly data dependent. NAB economists have flagged that housing and services inflation could complicate the RBA’s path to easing.
Otley also cautioned today that while a November rate cut remains the base case, “the key takeaway from today’s data is that a November cut is not a done deal. Tension is building in the economic data flow in Australia”.
CBA head of Australian economics Belinda Allen is due to release a full RBA preview later this week.
