Three of Australia's Big Four major banks are now expecting further rate hikes before year's end after Wednesday's consumer price index (CPI) revealed that inflationary pressures in Australia aren't letting up — at least not fast enough.
Following the release of the July CPI print, ANZ was the first to forecast a rate hike. National Australia Bank (NAB) and Commonwealth Bank of Australia (CBA) quickly followed suit. All three expect a 25-basis-point increase, but differ on timing: NAB expects a September hike, while CBA and ANZ are forecasting an increase in November.
"We have a fairly high conviction that the RBA will hike at some point this year. The question is whether it will be in September or November," Harry Ottley, an economist at CBA, told Australian Broker. "We favor the November meeting because it'll give the RBA a bit more time to get more inflation data, including the quarterly inflation data, which they put more focus on.
"And based on the recent inflation data, the monthly data, the likelihood is that the quarterly data for inflation will look quite strong and the RBA will basically have to hike at that point, because inflation is higher than they forecast. And they've been talking in their communication recently around having very little appetite for any upside surprises to inflation."
The Reserve Bank of Australia (RBA) has raised the official cash rate (OCR) three times so far in 2026, taking it to its current level of 4.35%.
RBA Governor Michele Bullock said after the August meeting that the bank would consider raising interest rates again, "if that is what is required to bring inflation down in a timely way."
RBA Deputy Governor Andrew Hauser reiterated Bullock's warning later in the month while speaking at an event in Brisbane, saying that the conflict in the Middle East, investments in artificial intelligence and weak productivity growth in Australia are all potential sources of further inflationary pressure.
Mortgage holders and investors are already feeling the squeeze from higher interest rates and increased costs of living. For would-be homeowners, the challenge is compounded by elevated property prices in some areas and a persistent housing shortage.
The July CPI offered little relief for markets. While inflation is moderating in Australia, it's still above the RBA target inflationary range of 2% to 3%.
In the 12 months leading up to July, headline CPI was up 3.5%, down from 3.8% in the lead up to June. Meanwhile, trimmed mean inflation was up 3.6%, unchanged from the year leading up to June.
"The headline inflation did come down, and obviously, that's a positive thing," Ottley said. "But some of that to do was to do with base effects from last year. So it's not really that relevant around current inflationary pressures. And if you look at, for example, the trimmed mean monthly figure for the July number, that was 0.5% in just one month. That implies that the quarterly number is going to be fairly high. So it looks like there's still a fair bit of broad-based inflationary pressure around. The economy might be proving a little bit more resilient than we had expected."
NAB Chief Economist Sally Auld added in a note: "July CPI data showed inflation running hotter than the RBA expected in early August, and the RBA has repeatedly signalled in recent weeks that the Monetary Policy Board would act if upside risks to inflation were realised. The risk is biased towards an additional hike in November, especially if activity data shows resilience in coming months."
Westpac is the outlier, forecasting rates to remain on hold through the end of the year. The major expects the RBA's next move will be a cut midway through 2027.
"The July CPI did come in hotter than expected and while the risk of a November rate hike has increased, we still expect the RBA to remain on hold this year," said Westpac Senior Economist Justin Smirk.
The economist argued that the latest CPI reading doesn't necessarily signal that inflation is worsening. He pointed to new housing and rental costs coming in broadly as expected, while the surprise increases were concentrated in categories such as cars, household goods, restaurants and domestic travel, areas that may have been influenced by timing or seasonal factors.
On Thursday, futures were pricing in a 40% chance of a rate hike in September, rising to around 97% for November if the central bank leaves rates unchanged at its September meeting.
The RBA's next meeting on monetary policy is scheduled for the 28 and 29 of September.
