Australia’s cost of living climbed sharply in July, with consumer prices rising at a faster pace than economists expected. A sudden spike in electricity bills pushed inflation higher, reigniting debates about household affordability and the Reserve Bank of Australia’s (RBA) monetary policy path.

Inflation Jumps Beyond Expectations

According to the Australian Bureau of Statistics (ABS), the monthly consumer price index (CPI) rose 2.8% in July compared to the same time last year. That marked a sharp increase from June’s 1.9% annual rise and was well above market forecasts of 2.3%.

On a monthly basis, prices rose 0.9% from June, underscoring how quickly cost pressures have reemerged despite earlier signs of easing inflation.

Core inflation also picked up. The trimmed mean measure, which excludes volatile items, rose 2.7% year-over-year, compared with 2.1% in June. A broader measure that excludes holiday travel and other swings accelerated to 3.2% from 2.5%.

Electricity Bills at the Center of the Spike

The ABS said the biggest contributor was electricity, which surged 13% in July. The jump was largely due to the timing of federal government rebates, which were not applied for households in New South Wales and the Australian Capital Territory that month.

“This meant that many households had higher out-of-pocket costs for electricity in July,” said Michelle Marquardt, head of prices statistics at the ABS. “Annual electricity price reviews also came into effect, adding further upward pressure.”

Households in those regions are set to receive rebates in August, which should temporarily ease their bills. However, the broader energy market remains volatile, leaving uncertainty around future utility costs.

Broader Cost-of-Living Trends

While electricity dominated the headlines, other essentials also climbed. Rent prices rose 3.9% in the 12 months to July, though this was the slowest annual growth since late 2022. Clothing and footwear jumped 1.7% in the month, highlighting broader household budget strains.

Housing affordability has become a growing political issue as well, with renters and mortgage holders facing higher costs amid lingering inflation and elevated interest rates.

RBA’s Next Move in Focus

The Reserve Bank of Australia, which cut interest rates for a third time this month to support a slowing economy, is now facing a delicate balancing act. While inflation has eased from its late-2022 peaks, July’s data shows price pressures can quickly reappear.

The RBA currently forecasts headline inflation—2.1% in the most recent quarter—to rise again, peaking near 3.1% by mid-2025 as government rebates roll off. Core inflation, however, is expected to remain steadier around 2.6% in the coming years.

Markets are still pricing in a likely rate cut in November, though traders are watching upcoming inflation reports closely to see whether the RBA slows or accelerates its easing cycle.

What Comes Next

July’s CPI release covers only part of the consumer basket, with services less represented than goods. From November, the ABS will begin publishing a more comprehensive monthly inflation dataset, which should provide a clearer picture of price trends.

For now, the sharp rise in power bills has added urgency to Australia’s ongoing cost-of-living debate, with households, businesses, and policymakers all bracing for what could be another turbulent year for inflation.

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