Australia’s July Monthly Consumer Price Index (CPI) came in stronger than expected, rising 2.8% year-on-year – well above the market’s expectations of 2.3%. The market was expecting higher inflation than the 1.9% print in June due to the expiration of the electricity rebates but underestimated the impact.

It wasn’t just electricity as the culprit - the underlying measures of inflation also accelerated. Even excluding volatile items such as fuel, fresh food and holiday travel, inflation jumped to 3.2%, the fastest pace in more than a year. This suggests that price pressures are not only higher than expected, but also more broad-based.

The standout driver was electricity, with power prices surging 13% in July. This spike was partly due to annual price resets, but also to the timing of energy bill rebates. While some states benefitted from extended relief measures, households in NSW and the ACT did not receive their Commonwealth rebates until August. The result was a sharp increase in out-of-pocket costs in July. While not significant for the overall data another notable item for households is the price of eggs, up 18% in the 12 months to July!

We acknowledge the monthly CPI Indicator is inherently volatile, provides only an imperfect guide to the quarterly CPI (charted above), and is generally interpreted cautiously by the RBA. Nevertheless, July’s notable rise in both headline and underlying inflation is likely to reinforce the RBA’s cautious stance heading into the September meeting. The July print introduces upside risk to the September quarter CPI results, which are due on 29 October 2025. This suggests the RBA may pause on any further cuts until they meet on 4 November 2025.

We assess the investment outlook as:

• Interest Income securities: Yields may remain elevated as expectations for near-term rate cuts are pushed back. We continue to add duration and fixed rate exposure to take advantage of the current yield curve structure.

• Equities: Discipline in selecting companies who are well positioned to grow their earnings (and not just inflating valuations) remains key in a ‘hot’ market.

• Industrial Property: Largely unimpacted - we continue to see population growth boost demand for commercial property, while high construction costs and slow approvals restrict new supply, supporting valuations.

• Currency: The AUD remains below its long-term average but some upside risk remains should the RBA not provide the expansionary settings expected.

Whilst inflation has eased from the peaks of 2022–23, July’s data is a reminder that the journey back to stable price growth is uneven. For investors, patience and effective strategy remains paramount.