# Australian Inflation Eases to 3.5% in July, But Not Enough to Rule Out Fourth Rate Hike

> By  · Published 2026-08-27 · Updated 2026-08-27
> https://economysignal.com/en/2026/08/27/australian-inflation-eases-to-3-5-in-july-but-not-enough-to-rule-out-fourth-rate-hike/

## Summary
Australia's annual inflation rate eased to 3.5% in July from 3.8% in June, according to the ABS, but the drop was smaller than expected. This has intensified fears the Reserve Bank may implement a fourth interest rate hike this year, as inflation remains well above its 2.5% target, raising the risk of further pressure on mortgage holders.

## Key points
- Annual inflation fell to 3.5% in July, down from 3.8% in June
- The decline was smaller than economists had forecast
- Inflation remains above the Reserve Bank's 2.5% target, raising odds of a fourth rate hike this year

Australia’s annual [inflation](https://economysignal.com/en/tag/inflation/) rate fell to 3.5% in July, down from 3.8% in June, according to the Australian Bureau of Statistics. While prices grew at a slower pace, the decline was smaller than economists had forecast, reviving concerns that the Reserve Bank of Australia may need to raise [interest rates](https://economysignal.com/en/tag/interest-rates/) for a fourth time this year to bring inflation back to its target.

## Why does the July inflation figure matter?

The result matters because it falls well short of the Reserve Bank’s target of returning inflation to around 2.5%. A softer-than-expected slowdown suggests price pressures remain embedded in the economy, undermining hopes that inflation would ease quickly enough for the central bank to hold off on further tightening. Economists had anticipated a steeper drop in the monthly CPI indicator, and the smaller-than-forecast easing has unsettled expectations that rate rises were nearing an end.

> Markets had been pricing in a pause, but this data reopens the case for another hike, analysts said.

## What does it mean for mortgage holders?

A fourth rate increase this year would add further strain to households already managing higher borrowing costs, directly affecting variable-rate mortgage repayments. Homeowners have faced a series of rate rises as the Reserve Bank works to curb inflation, and another hike would deepen cost-of-living pressures at a time when many borrowers are already stretched.

## What happens next?

Attention now turns to the Reserve Bank’s upcoming meeting, where policymakers will weigh the latest inflation data against broader economic conditions before deciding on interest rates. With inflation still running well above the 2.5% target, financial markets and economists are recalibrating expectations, with growing speculation that the central bank may act again before year’s end to keep price growth under control.

## Source

- [theguardian](https://www.theguardian.com/australia-news/2026/aug/26/fears-grow-for-fourth-rate-hike-after-higher-than-expected-july-inflation-rate) — theguardian
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## Sources
- [theguardian](https://www.theguardian.com/australia-news/2026/aug/26/fears-grow-for-fourth-rate-hike-after-higher-than-expected-july-inflation-rate)