Investors have rapidly revised their outlook on interest rates after the latest inflation figures came in hotter than economists anticipated. Market pricing now indicates an 80 per cent probability of a further rate increase by the Reserve Bank of Australia before the end of the year, adding a fourth hike to earlier projections.
The July inflation print, released on Wednesday, showed consumer prices rising at a pace that exceeded forecasts, prompting a swift reassessment across bond and money markets. The data has effectively flipped the script on earlier expectations that inflation was moderating, and that the RBA might be able to hold rates steady through the remainder of 2026.
Treasurer Jim Chalmers noted that the government is monitoring the situation closely. 'We are committed to easing cost-of-living pressures, but today's data is a reminder that the job isn't done,' he said in a statement.
Opposition Treasury spokesman Angus Taylor seized on the figures to criticise the government's economic management, saying, 'These numbers show that Labor's spending is driving inflation higher, and families are paying the price through higher mortgage costs.'
Economists are divided on the Reserve Bank's likely course of action. Some argue that the RBA should hold fire to avoid damaging a still-fragile economic recovery, while others point to the stubbornness of services inflation and tight labour market as justifications for tightening further.
The Australian dollar rallied on the news, gaining half a cent against the US dollar, as foreign exchange markets reacted to expectations of higher local interest rates.
The RBA board next meets in September. The shift in market pricing means a November or December move is now seen as more likely than a hike at the September meeting, but the possibility has not been ruled out entirely.