Headline inflation rises to highest level in 12 months as hopes of another interest rate cut are dashed

Inflation has hit a 12-month high for the month of August, with headline inflation rising to three per cent and dashing hopes of an interest rate cut this month.

The monthly CPI indicator rose slightly above expectations after headline inflation reached 2.8 per cent in the 12 months to July.

But the annual trimmed mean inflation, which is the RBA's preferred measure of underlying inflation, fell from 2.7 per cent 2.6 per cent in August 2025.

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The ABS noted the largest contributors to annual inflation were housing, food, non-alcoholic beverages, alcohol and tobacco.

The Reserve Bank of Australia (RBA) had been anticipating an inflation spike after the state and federal government's electricity rebates expired and households began paying the full price of their energy bills.

"The annual rise in electricity costs is primarily related to households in Queensland, Western Australia and Tasmania having higher out-of-pocket costs in August 2025 than they did in August 2024," ABS head of prices statistics Michelle Marquardt said.

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"In August last year, state government electricity rebates were in place for Queensland ($1000), Western Australia ($400) and Tasmania ($250).

"Over the year, those rebates have been used up and those programs have finished. Excluding the impact of the various changes in Commonwealth and State electricity rebates over the last year electricity prices rose 5.9 per cent."

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The figure also suggests the RBA is likely to keep the cash rate steady when it meets on September 30 after a 0.25 per cent rate cut last month.

Borrowers have been handed rate cuts in February, May and August this year.

Treasurer Jim Chalmers said today the headline inflation figure was within market expectations.

"Despite the increased volatility in the global economy, underlying inflation is within the target range and that's a promising result in uncertain times," Chalmers said.

He said headline inflation had now been at or below three per cent for the past three years, describing it as a "very good thing".

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