Stronger Australian CPI Report Fails to Lift The Currency, Says Mitsubishi UFG

06:46 AM EDT, 08/27/2025 (MT Newswires) -- One of the main economic developments overnight Tuesday was the release of the latest monthly consumer price index report from Australia, said MUFG.

The report revealed that inflation picked up more than expected in July, rising to an annual rate of 2.8% up from 1.9% in June, wrote the bank in a note to clients.

At the same time, the trimmed mean measure of inflation, which excludes fuel prices and electricity bills, rose to 2.7% in July up from 2.1% in June. It lifts the trimmed mean measure of inflation slightly higher than the Reserve Bank of Australia's average forecast for Q3.

The main driver of the upside surprise to inflation in July was electricity prices which rose by 13% month over month, and now stand 13.1% higher than a year ago. It reflected an annual increase in electricity prices approved by regulators and the timing of the Australian government's rebate extension.

However, the pick-up in inflation is expected to prove short-lived with the jump higher in July expected to reverse quickly in August, stated MUFG.

It helps to partly explain by the muted reaction of the Australian dollar (AUD) to the upside inflation surprise overnight, added the bank. AUD/USD has continued to trade in a narrow range just below the 0.6500 level. The pair has traded between 0.6400 and 0.6600 for almost four months now.

The Australian rate market has moved to scale back expectations for further RBA easing, although this week's CPI report hasn't "significantly" altered expectations for the next policy meeting in September, when the RBA was already expected to leave rates on hold, according to MUFG.

There are currently only 5bps of rate cuts priced in by September and 33bps of cuts by year-end. In comparison, the Australian rate market was pricing in around 36bps of cuts by year-end as of Tuesday.

The RBA has recently indicated that it continues to favor gradual rate cuts with current forecasts conditioned on a "couple more cuts."

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