Borrowers could face another interest rate rise as inflation pressures remain sticky in Australia, with financial markets expecting the Reserve Bank to consider lifting official rates to 4.6 per cent at its November meeting. That move would take rates to their highest level in 15 years. Ordinary people carry the bill. The people making the calls sit far above the pain.
Headline inflation eased to a 10-month low of 3.5 per cent in July, but economists had expected a drop to 3.3 per cent, and underlying inflation rose 0.5 per cent to remain steady at 3.6 per cent. The numbers give the Reserve Bank another excuse to tighten the screws. The machinery of monetary control keeps moving, and borrowers are left to absorb the shock.
Who Pays for the Fix
Treasurer Jim Chalmers said the headline inflation rate had fallen for four consecutive months, but he warned that the economic fallout from America’s war against Iran was spreading beyond fuel into other parts of the economy, including dwelling construction costs. He said, “While the initial impact from the conflict on inflation came from fuel, we’re now seeing it broaden into other areas of our economy like dwelling construction costs.” A fifth of the monthly increase was due to the government partially increasing fuel excise, and the tax on petrol and diesel returned to its pre-war level at the start of August.
That’s the state in miniature: war costs passed down, taxes adjusted, and households told to cope. The fuel excise shift shows how quickly official decisions land on the people who need to drive, work, and get through the month. No one at the top is paying at the pump.
Other contributors to the monthly result included an unexpected jump in the price of household furnishings such as carpets and furniture, and a sharp lift in domestic airfares that coincided with July school holidays. The figures also showed ongoing inflationary pressures that, despite the Reserve Bank’s three interest rate rises this year, have not gone away. The hikes haven’t solved the problem. They’ve just made the pressure heavier.
Housing, Rents, and the Bottom Line
House construction costs continued to grow as builders lifted prices because of the fallout from the Iran war on construction materials and higher wages. Every city recorded a sharp lift in building costs over the past 12 months. In Perth, prices were climbed by 2.6 per cent in the 12 months to July last year, and over the past year they’ve grown by 8.3 per cent. The smallest growth was in Melbourne, where prices have lifted by 3.9 per cent over the past year after falling by 1.4 per cent in the year to July 2025.
Rents were climbing fastest in Darwin, up by 6 per cent over the year, while they have lifted by just 1.3 per cent. Since July 2022, soon after the Albanese government came to power, rents have soared by almost 35 per cent in Perth, 28.6 per cent in Brisbane, 24.7 per cent in Sydney and 20 per cent in Melbourne. They have lifted by just 6.5 per cent in Canberra and by 3 per cent in Hobart.
Those numbers tell the real story. Housing isn’t a neutral market; it’s a pressure system that squeezes people from every side while governments and banks talk in the language of targets and stability. The rent rises hit hardest where people have the least room to move.
At the state level, prices rose in every capital city, with the biggest jump of 1.3 per cent in Adelaide and Hobart. Annual inflation in the two cities is now 4.4 per cent and 4.5 per cent respectively. Prices rose by 0.9 per cent in Sydney and 1 per cent in Melbourne, with the annual rate in both at 3.2 per cent.
The Rate-Hike Chorus
Shadow treasurer Tim Wilson said the government’s budget policies were to blame for high inflation and the prospect of further rate rises. He said, “While inflation remains above the RBA’s target band, Australians will continue to live in fear of yet another interest rate hike, on top of the 15 that have already been delivered since Labor came to power.” The parliamentary back-and-forth changes nothing for the people facing the bill. One side blames the budget, the other leans on the central bank, and the same households get squeezed either way.
Deutsche Bank’s chief economist for Australia, Phil O’Donaghoe, said he now expects the Reserve Bank to use its late September meeting to push up interest rates. He said the bank had warned after its July meeting that it may hike the cash rate if there were signs that inflation was failing to fall as expected. O’Donaghoe said, “In our view, those upside risks materialised today. And we expect the RBA to hike accordingly.” He added, “We think the July inflation report leaves little room for the RBA to do anything other than follow-through on its hawkish posturing, and the earlier it does, the better.”
EY chief economist Cherelle Murphy said a rate rise later in the year was more likely. She said the drop in the headline inflation rate was positive, but underlying price pressures remained entrenched. Murphy said, “Given the slow progress in returning underlying inflation to target and the elevated risks around inflation, restrictive monetary policy is required.” She added, “We believe that the impact of higher fuel prices, an economy operating close to capacity, and ongoing upside risks warrant a further increase in the cash rate this year.”
The experts and officials speak in the language of discipline. The rest of the country lives with the consequences. Higher rates, higher rents, higher costs, and the same old promise that pain today will somehow produce order tomorrow.