Hot CPI Keeps RBA Hike Risk Firmly in Play

• July headline CPI eased to 3.5% y/y, but exceeded the 3.3% consensus, while trimmed mean inflation remained elevated at 3.6%. Markets increased the probability of an RBA hike next month to ~27% from 17%, with around an 80% chance of a move by February.
• Trimmed mean CPI rose 0.5% m/m, its strongest monthly increase in a year, while non-tradables inflation remained particularly sticky at 4.4% y/y. The result reinforces the RBA’s concern that domestic inflation pressures are proving persistent despite headline inflation moving lower.
• US annual inflation printed at 3.7% versus 3.6% expected overnight, lifting the market-implied probability of a September Fed hike. US equities were relatively subdued as higher-rate expectations offset support from technology and industrial stocks.
• Brent crude continued to fall as markets responded to signs of progress around the Strait of Hormuz. Lower oil provides some relief to the global inflation outlook, although markets remain focused on Nvidia earnings and Fed Chair Kevin Warsh’s Jackson Hole speech on Friday.