The monthly inflation figures for July came out today, with inflation jumping from 1.9% to 2.8%. So, does this mean that inflation is back? Interest rate cuts are off? Interest rates might have to go back up?

The answer is no, no, and no.

As many people have said the monthly CPI figures are incredibly volatile and should be used with caution. The people saying this includes the Australian Bureau of Statistics (ABS) who publish the numbers. The RBA Governor has previously said that they largely ignore the monthly figures, and that the quarterly CPI is what they focus on.

It seems the main driver of the increase was electricity prices. This in turn was driven by a gap in the government electricity subsidies. Households in NSW and the ACT did not receive payments of the extended Commonwealth Energy Bill Relief Fund (EBRF) in July and will instead receive them in August. This means that we will see a big drop in next months electricity prices as the subsidies kick in. All this highlights the volatile nature of the monthly figures.

Other things that drove the figures higher was an increase in holiday travel and accommodation. July included school holidays when prices for flights and accommodation go up. Again, after the peak period of the school holidays is over, they are likely to fall back in next month’s figures.

Inflation in food has continued to ease but it is still historically high. There have been large increases in included coffee, tea, and cocoa because of poor growing conditions overseas.

In good news, rent increases have decreased further this month. They are now at their lowest annual increase since November 2022.

Monthly inflation jumps around. The real focus for the RBA will be the next quarterly CPI release. This will come out in late October. We should hold judgment on what is happening to inflation till then.