July’s inflation data beat forecasts for the first time in months. Oliver Hume’s Matt Bell explains what that means for business borrowing costs.
July’s inflation data beat forecasts for the first time in months. Oliver Hume’s Matt Bell explains what that means for business borrowing costs.
For three months running, Australia’s inflation data had come in softer than expected, giving businesses some confidence that borrowing costs might ease. That run broke this week.
The Australian Bureau of Statistics’ July figures showed monthly trimmed mean inflation, the Reserve Bank’s preferred measure of underlying price pressure, rose 0.5 per cent, well above the 0.3 per cent economists had forecast and the largest monthly increase in a year. Annual trimmed mean inflation held at 3.6 per cent, unchanged from June but still above the RBA’s own forecast of 3.8 per cent softening toward target.
Headline annual inflation actually eased, dropping to 3.5 per cent from 3.8 per cent in June. But the monthly headline figure rose 1.0 per cent, above the 0.8 per cent forecast, driven largely by a 7.5 per cent jump in fuel prices after three months of declines.
Matt Bell, Chief Economist at Oliver Hume Property Group, says the data marks a shift after a run of encouraging news. “For the first time in three months, today’s July inflation data surprised the market to the upside,” he said. “Inflation outcomes have consistently surprised on the downside for the previous three months, but both monthly headline and trimmed mean inflation were higher than forecast.”
The timing matters. Minutes from the RBA’s 10 to 11 August board meeting, where the Board voted unanimously to hold the cash rate at 4.35 per cent, were released the same week. According to reporting from Investing.com, the minutes showed the Board debated a pre-emptive hike before deciding current settings were already restrictive enough to keep waiting for more data, while explicitly flagging that risks to the inflation outlook remain tilted to the upside.
Bell reads the combination as a warning sign for anyone counting on rate relief. “The minutes clearly showed a board concerned with potential for inflation to increase in the second half of the year and willing to raise rates at the first sign of this,” he said.
Before this week’s data, markets had priced the chance of another hike at the RBA’s September meeting at below 30 per cent. “Today’s result combined with the RBA Board meeting minutes will increase the odds of a hike in September, or at least by the end of the year,” Bell said.
Even so, Bell isn’t calling for a return to the hiking cycle as the central scenario. “Our base case remains a longer period of the RBA holding on rates before the next move down occurs sometime in the second half of 2027, but the risk to this has clearly shifted higher,” he said.
For SME owners, this is less about a single data point and more about what it means for planning. Business loan rates, equipment finance, and lines of credit are all priced off the same cash rate the RBA is signalling it may need to defend for longer. A hold that stretches deeper into 2027, rather than the earlier hope of cuts by mid-2026, changes the maths on any expansion, hiring round, or major purchase that depends on borrowing.
Bell also points to a broader effect beyond interest costs themselves: uncertainty is doing some of the RBA’s work for it. “The housing market is in the middle of the softening cycle brought on by the three previous rate hikes, and likely will be until the outlook for rates stabilises, even if that doesn’t mean cuts for potentially 12 months,” he said. “Once purchasers can lock in their borrowing capacity and budgets with some degree of certainty, markets will start to stabilise.”
The same logic applies to business owners weighing whether now is the time to borrow. Rates aren’t necessarily going up, but the RBA has made clear it hasn’t ruled it out, and that ambiguity alone can be reason enough to hold off on a decision until the picture clears. The next RBA meeting, on 28 and 29 September, will be the first real test of whether this week’s surprise was a one-off or the start of a trend.
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