Trimmed Mean Inflation Stays Above Target and Revives RBA Hike Bets

Australian headline inflation cooled to 3.5% year over year from 3.8%, but hike expectations went up. All because trimmed mean inflation, the measure the Reserve Bank of Australia leans on because it strips out the most volatile price moves, held at 3.6% and stayed above the central bank's 2 to 3% target band. The monthly print of 0.5% was the strongest in over a year, which is a high reading for a core measure rather than a headline one. Household spending then backed it up with a 1.1% rise in July, a fourth month in five above 1%. Here is what happened, and why the cooling headline was the least informative number in the release.

Matt Simpson is a Market Analyst for StoneX Media and a certified financial technician who has spent 15 years analyzing and trading foreign exchange, indices, gold and oil. He works across FX macro, technical analysis and market sentiment, which is where central bank inflation measures and currency positioning meet.

Key Themes

• Trimmed mean inflation holds at 3.6%, above the Reserve Bank of Australia's 2 to 3% target band.
• The 0.5% monthly core print is the highest in more than a year.
• Household spending rose 1.1% in July, a fourth month in five above 1%.

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Australian Core Inflation Holds Above Target and Rebuilds Rate Hike Bets

Australian trimmed mean inflation stayed at 3.6% while the headline rate fell to 3.5% from 3.8% year over year, and that divergence is the whole story. A headline rate can cool on energy or food swings without telling the Reserve Bank of Australia anything about underlying price pressure, which is exactly why the trimmed mean measure exists and why a 0.5% monthly reading at a one year high carries more weight than the annual figure sitting beside it. Household spending confirmed the picture rather than contradicting it, rising 1.1% in July for a fourth month in five above 1%. As Matt Simpson puts it, "If anything, it says the economy is heating up once again", with some Reserve Bank of Australia members already discussing a hike at their last meeting. Consequently, markets moved from debating cuts to pricing tightening risk into year end, and forecasts split, with National Australia Bank calling a hike, Deutsche Bank penciling one in, and ANZ, Commonwealth Bank of Australia and Westpac expecting a hold.

Quarterly Inflation Data Shapes the Reserve Bank of Australia Hike Window

The Reserve Bank of Australia usually waits for quarterly inflation data before moving, and that convention decides which meeting matters more than the monthly prints do. Simpson describes the pattern plainly, noting the central bank "haven't always waited for the quarterly report, but they usually do", which pushes the weight of the decision toward the meetings that follow a full quarterly release. That turns the September question into a sequencing problem rather than a single yes or no. According to Simpson, "If they do hike in September, they probably won't in December. If they don't hike in September, November is a hot candidate because they'll have quarterly CPI data at hand as well". For anyone watching the Australian dollar, the practical read is that a strong jobs report between now and the meeting has more power to move September odds than another monthly inflation print does.

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--- Written by Frédéric Guétin, StoneX Media Producer

--- Expert: Matt Simpson, StoneX Media Market Analyst