Australia's inflation holds at 3% in August, delaying rate cuts as price pressures persist

Australia's latest monthly inflation reading rose to 3.0% in the 12 months to August, the Australian Bureau of Statistics said Wednesday, potentially delaying relief for mortgage holders as the Reserve Bank weighs higher price levels. The reading, up from 2.8% in July, marks the highest annual pace since July 2024 and could push back expectations for relief on interest rates as the central bank weighs its next move.

The largest contributors were housing, up 4.5% in the year to August, followed by food and non-alcoholic beverages at 3.0% and alcohol and tobacco at 6.0%. Core inflation, CPI excluding volatile items and holiday travel, rose 3.4% in the year to August, up from 3.2% in the year to July.

RBA Governor Michele Bullock told the House of Representatives Standing Committee on Economics this week that inflation has fallen materially, but the price level isn't coming back down. She said the higher price level has affected everyone, including those paying mortgages, renting, or running a business, and has been especially hard on people with lower incomes and on those in vulnerable situations.

RBA Assistant Governor Sarah Hunter said last week that prices would never return to pre-pandemic levels. The cost of living is now higher, and the central bank is not seeking to push the price level back to pre-Covid levels. She cited staples such as milk and bread as examples of items that cost considerably more than before the pandemic.

Analysts said the figures complicate the RBA's policy path. With inflation proving more persistent than hoped and core measures still rising, rate cuts could be pushed further into the future, keeping mortgage payments higher for longer and increasing pressure on households.

The ABS update arrives as households continue to grapple with higher living costs and as policymakers weigh the balance between containing inflation and avoiding a sharp rise in unemployment. The next policy decision is expected later this year, with economists watching for signs that price pressures ease in the coming months.