Prices increased by 3.5% in the 12 months to July 2026, according to new data from the Australian Bureau of Statistics (ABS).
This is less than last month’s 3.8% inflation rate, and represents the fourth consecutive month where the inflation rate has fallen.
A falling inflation rate does not mean that prices are falling: it means they are still increasing, but at a slower rate.
Inflation
Inflation measures the change in the prices of goods and services over time.
The most common measure of inflation is the Consumer Price Index (CPI), which tracks the rate of price changes and is typically expressed as an annual rate.
This is often called ‘headline inflation’.
Why the increase?
The main drivers of inflation were housing, food and non-alcoholic beverages, and recreation and culture.
Wages
Inflation and wages are often compared because cost of living pressures worsen when inflation rises faster than wages.
Last week, the ABS announced that wages rose by 3.2% over the 12 months to the June quarter 2026.
This is important because it tells us that real wages (wages after inflation is taken into account) have fallen by roughly 0.3% in the past year.
Trimmed mean
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The ‘trimmed mean’ is an alternative measure of inflation that ignores the most extreme positive and negative price movements (e.g. a sudden increase in the price of petrol).
For this reason, the Reserve Bank of Australia (RBA) prefers this measure as it ignores any short-term noise.
The trimmed mean was 3.6% in the 12 months to July 2026.
RBA
The news comes as the RBA decided to keep the cash rate on hold at 4.35% at its last meeting.
The cash rate is the interest rate that banks charge each other for short-term loans, and is the tool used by the RBA to get inflation under control.
The RBA increases the cash rate if inflation is too high and decreases the cash rate if inflation is too low, aiming for an inflation rate between 2 and 3%.
What’s next?
The latest data tells us that both headline inflation and the trimmed mean are higher than the RBA’s target range.
While an unchanged cash rate in the next RBA meeting is still widely expected, the odds of an increased cash rate have risen.
This is because both headline inflation and the trimmed mean were higher than economists expected.
The next cash rate decision is on the 29th of September.
The next inflation release is on the 30th of September.
