Australian Inflation Rises, Complicating RBA Outlook

Australia’s consumer price index (CPI) rose faster than expected in August 2025, underscoring persistent inflationary pressures that could complicate the Reserve Bank of Australia’s (RBA) monetary policy path.

CPI and Core Measures

Headline CPI increased 3% year-on-year, the fastest pace since July 2024, compared with expectations of 2.9% and up from 2.8% in July.

Core measures showed mixed trends:

• Trimmed mean CPI (closely watched by the RBA) eased to 2.6% from 2.7%, suggesting slight relief.
• Excluding volatile items and holiday travel, inflation accelerated to 3.4% from 3.2%, highlighting sticky services and essentials inflation.

Key Drivers of Inflation

According to the Australian Bureau of Statistics (ABS):

• Housing inflation jumped to 4.5% (from 3.6%), driven largely by electricity bills.
• Electricity costs surged 24.6% YoY, reflecting the expiry of state government rebates in Queensland, Western Australia, and Tasmania.
• Food, beverages, alcohol, and tobacco were also major contributors.

Market and Policy Implications

Analysts at Westpac flagged “upside risk” to their Q3 trimmed mean CPI forecast of 0.7%, citing resilient services prices.

The release comes just ahead of the RBA’s September policy meeting:

• Markets had expected the RBA to hold rates steady after last month’s 25 bps cut.
• However, the stronger CPI print may reduce the likelihood of further near-term cuts, as inflation is not easing as quickly as the RBA anticipated.

This leaves the central bank in a policy dilemma: balancing persistent price pressures against signs of a slowing economy.