Dynamic Business | Businesses Should Watch This Week's Inflation Surprise Closely

What July's Inflation Surprise Means for Business Borrowing Costs

Yajush Gupta of Dynamic Business reports on the Australian Bureau of Statistics' July inflation figures, which broke a three-month run of below-forecast results. Oliver Hume Property Group Chief Economist Matt Bell weighs in on what the data means for the Reserve Bank's rate outlook and business borrowing costs.

Inflation Data Surprises to the Upside

The ABS's July figures showed monthly trimmed mean inflation, the RBA's preferred underlying measure, rose 0.5 per cent, above the 0.3 per cent forecast and the largest monthly increase in a year. Annual trimmed mean inflation held at 3.6 per cent, still above the RBA's own forecast of a softening toward target. Headline annual inflation eased to 3.5 per cent from 3.8 per cent, but the monthly headline figure rose 1.0 per cent, driven largely by a jump in fuel prices.

Bell says the result marks a shift after a run of encouraging news, noting that inflation outcomes had consistently surprised on the downside for the previous three months before this reading came in higher than forecast on both measures.

Implications for Interest Rates and Business Planning

The data landed the same week as minutes from the RBA's August board meeting, which held the cash rate at 4.35 per cent while flagging that risks to the inflation outlook remain tilted to the upside. Bell notes the minutes showed a board concerned about inflation rising in the second half of the year and prepared to act at the first sign of it, which he expects will lift the odds of a September hike, or at least one by year's end.

Bell's base case remains a longer hold before the RBA's next move down, now expected sometime in the second half of 2027, though he says the risk of an earlier hike has clearly increased. For business owners, he points to borrowing costs on loans, equipment finance, and credit lines as directly exposed to how long that hold stretches, and flags that uncertainty over the rate path is itself a factor in decisions to defer expansion or major purchases until the outlook stabilises.

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