As you're likely aware, on Wednesday, the Australian Bureau of Statistics (ABS) released the latest Australian inflation data for the year to July at 11:30am AEST.
And many investors buying ASX shares chose that moment to reach for their sell buttons.
Indeed, at 11:30am, the S&P/ASX 200 Index (ASX: XJO) was up a healthy 0.8%. By the time the closing bell rang, the ASX 200 was down 0.4%.
Much of that selling pressure came as investors fear that stubborn inflation levels will lead to yet another interest rate hike from the Reserve Bank of Australia (RBA) in 2026.
That's because headline inflation of 3.5% for the year to July came in materially higher than consensus expectations of 3.3%.
And trimmed mean inflation – which takes out certain volatile items, like automotive fuel and is the RBA's preferred gauge – remained stuck at 3.6%, and was up 0.5% for the month of July. The trimmed mean figure also exceeded consensus expectations. And it remains well above the RBA's target inflation range of 2% to 3%.
Now, ASX share investors have already had to endure three RBA interest rate increases in 2026. Although the central bank kept rates on hold at 4.35% at its last two meetings, this still sees the cash rate back at its 2024 peak, and matching the highest levels seen since 2011.
So, what can ASX investors expect from interest rates now?
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What the experts are saying on Aussie inflation and the RBA's interest rate path
Josh Gilbert, lead analyst for APAC at eToro, said that the trimmed mean inflation figure is what's likely to worry RBA governor Michele Bullock.
Gilbert noted:
It suggests underlying price pressures are not easing quickly enough, despite three rate hikes this year and a labour market that is beginning to soften. The board paused in August because it wanted more evidence, and this is not the evidence it was hoping for.
The trimmed mean has now sat at 3.5% or above for three months running, after holding at 3.3% in February and March. That number isn't drifting back towards the 2-3% target band, it's moving away from it.
He added that another interest rate hike isn't locked in for ASX share investors yet.
"One hotter print does not make another hike inevitable, particularly with unemployment rising to 4.5%," he said.
However, Gilbert added, "The RBA has repeatedly warned it will act if inflation looks like becoming embedded, and this read today will have the board feeling a little nervous."
CreditorWatch chief economist Ivan Colhoun sounded a more bearish note on the RBA's next interest rate move following the latest ABS data.
According to Colhoun:
It really leaves the RBA board no option but to raise Australian interest rates further at the upcoming September board meeting. The board is dealing not with upside inflation risks and cost pressures, but with upside inflation reality.
And we'll leave off with Commonwealth Bank of Australia (ASX: CBA) economist Belinda Allen (quoted by The Australian Financial Review).
"We judge the broad-based upside surprise in the July CPI as having crossed that threshold and materially increased the likelihood of another RBA hike," she said.
Stay tuned!
