The Melbourne Institute’s monthly inflation measure rose by 0.9% in July, up from 0.1% in June. This marks the most substantial monthly increase in 19 months, with annual inflation climbing to 2.9% from 2.4% in June.
Trimmed mean inflation also increased by 0.8% month-over-month in July, again the largest rise in 19 months, with a yearly increase of 2.6%. These figures oppose the Reserve Bank of Australia’s expectations for a rate cut.
Inflation Data Insights
The data from the Melbourne Institute is not as respected as other inflation statistics. Nonetheless, it suggests renewed price pressures in the country’s economy.
The new inflation data from the Melbourne Institute is a surprise, showing prices jumped 0.9% in July. This sharply reverses the cooling trend we saw in June and pushes the annual rate up to 2.9%. This unexpected heat will make traders question the market’s recent bets on an upcoming Reserve Bank of Australia (RBA) rate cut.
We must remember this is a private survey and not the official CPI that the RBA prioritizes. The last official release for the second quarter of 2025 actually showed inflation easing slightly to a 3.4% annual rate, which had fueled hopes for a cut. This new report challenges that narrative but doesn’t completely overturn it until we see official data confirm the trend.
Labour Market and Economic Outlook
Looking at the broader picture, the labour market remains tight, with the most recent data from July showing the unemployment rate holding firm at 3.9%. This underlying economic strength, combined with a potential re-acceleration in prices, supports the view that the RBA will remain on hold. A rate cut in the coming months now seems much less likely than it did just a week ago.
Looking back at the RBA’s behaviour in 2024, we know they are extremely cautious about cutting rates too early and risking a second wave of inflation. They will likely dismiss this single private survey and wait for the official third-quarter CPI report in late October before signaling any major policy shift. For now, their stance will almost certainly be “higher for longer.”
For interest rate traders, this means unwinding bets on rate cuts for late 2025 or early 2026. We should expect short-term bond yields to rise as the market reprices the odds of a cut happening this year to nearly zero. Futures contracts tied to the RBA’s cash rate will likely see a hawkish adjustment in the coming days.
The increase in uncertainty is a key takeaway, making options strategies more attractive. Higher implied volatility in the Australian dollar and bond markets is expected. Traders could look at buying straddles or strangles to profit from a larger-than-expected move, as the debate between a resilient economy and sticky inflation intensifies.
This new data should also provide a tailwind for the Australian dollar. With other central banks still leaning towards easing, a more hawkish RBA makes the Aussie more attractive. We could see AUD/USD find support and climb, so traders might consider long positions in the currency or buy call options.
