RBA Recap

• The RBA lifted the cash rate by 25 basis points to 4.60%. The Board was unanimous, though it weighed a hold before deciding to move. It judged that the upside inflation risks flagged in August had materialised: higher energy prices from the Middle East conflict, AI-related cost and demand pressures, and persistent domestic capacity constraints.
• Governor Bullock stressed a measured approach. The aim is to slow demand enough to bring it back into balance with supply while preserving employment gains, not to signal a predetermined run of further increases.
• November remains data dependent. With policy taking 12 to 18 months to work through and August inflation coming in softer, expectations of a near-term follow-up have eased, although the Board has said it will act again if required.

The Australian Economy

• July inflation proved both stronger and broader than expected. Trimmed mean rose 0.5% in the month, and nearly 60% of the basket was running well above the target band, reinforcing the Board’s concern that price pressures were becoming entrenched.
• Demand added to that concern. Household spending jumped 1.1% in July and June quarter GDP grew 0.4%, both ahead of forecasts, while a record A$27.2 billion current account deficit showed higher oil prices flowing through to the domestic economy.
• Elsewhere, tighter policy is clearly taking hold. Housing lending and dwelling values are falling, with Sydney declining faster than in the 2022–23 correction, confidence has weakened and unemployment has risen to 4.6%. That leaves the Board weighing resilient inflation against a cooling economy.

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