Inflation surprise: What July’s CPI spike means for young Aussies

Justin Smirk
and
Marina Gainulina
12:00pm August 29 2025

The Consumer Price Index (CPI) is a key indicator for measuring the cost of living in Australia. It’s also the most well-known quarterly measure of inflation.

As the Reserve Bank of Australia (RBA) explains it, the CPI captures price changes for the goods and services that households typically buy and is calculated independently by the Australian Bureau of Statistics (ABS).  

If it feels like almost everything is becoming more expensive, that's because it is. Case in point: if you’re in the mood to hurt your feelings, the RBA has an 'inflation explorer' interactive tool, where you can add different CPI elements -  like everyday items including food, clothes and housing - to a shopping basket and see how much the prices have changed over time (data captured until 2024).

For example, a basket of goods and services valued at $100 in 2000, would cost almost double that ($194.02 to be exact) in 2024. Ouch. 

CPI figures are relevant to the entire population, but young Aussies juggling eye-watering rental prices, groceries and power bills are often disproportionally affected.

Yesterday, the CPI data delivered a curveball. Let’s unpack it.  

The latest Monthly CPI Indicator from the ABS showed prices rose 2.8 per cent over the year to July 2025 - a sharp jump from 1.9 per cent in June and well above economists’ expectations.  

What’s driving CPI prices up? 

According to the ABS, the biggest contributors to the July spike were: 

  • Housing: up 3.6 per cent over the year, driven largely by a 13.1 per cent surge in electricity prices 
  • Food and non-alcoholic beverages: up 3 per cent 
  • Alcohol and tobacco: up a hefty 6.5 per cent 
     

Let’s break that down further: 

  • Electricity shock: electricity prices jumped 13 per cent in July alone, largely because NSW and ACT households didn’t receive their usual government rebates that month. These rebates, part of the Energy Bill Relief Fund, are designed to cushion households from rising energy costs. But in July, their absence meant many people paid full price. 
  • Rent and housing: rents rose 3.9 per cent over the year, the slowest pace since late 2022, but still a significant pressure point. New dwelling prices also nudged up, as builders scaled back discounts and promotions. 
  • What’s core inflation, and why does it matter? The RBA doesn’t just look at headline inflation. It focuses on “core” inflation, which removes what economists deem as ‘volatile items’ like fuel and fresh food. One key measure is the Trimmed Mean CPI, which rose to 2.7 per cent in July, up from 2.1 per cent in June. 

This matters because the RBA yearns for and tries to keep inflation between 2-3 per cent. A rise in core inflation suggests that price pressures might be spreading more broadly - not just in energy or groceries. 

What will the RBA do? 

According to Westpac Senior Economist Justin Smirk, the RBA is likely to hold off on cutting interest rates in September. Instead, they’ll wait for the full September quarter CPI, due in late October.  

Why? Because one hot month doesn’t make a trend - but it does raise eyebrows. 

“Core inflation has unexpectedly picked up... we are watching closely to see if this is the start of a new, more inflationary trend,” Smirk says. 

The RBA has already cut rates three times this year, bringing the cash rate to 3.6 per cent. But this latest data could delay further cuts, especially if inflation proves sticky. 

What does this mean for you? 

If you’re a student, renter or early-career worker, this inflation bump could hit your wallet in a few ways: 

  • Higher electricity bills, especially if you’re in NSW or ACT 
  • More expensive groceries, particularly staples like bread, dairy and fresh produce 
  • No immediate relief on interest rates, which affects everything from credit card repayments to HECS indexation 
     

What happens next? 

The RBA will be watching closely. If inflation continues to rise, they may pause or even reverse rate cuts. But if this was a one-off spike - driven by rebate timing and seasonal quirks – then more relief could still be on the horizon. 

For more money news and economics explainers, sign up to our weekly newsletter, Rewired, here.

Justin Smirk

Justin has 17 years’ experience in Financial Markets. He joined Westpac in 1999 following his early training at the Reserve Bank of Australia. He has spent time in Westpac’s London office and has had a secondment as Chief Economist at St George Bank. Justin’s areas of interest are the international economy, commodity markets and the resources sector. He also analyses the Australia labour market and prices.

Marina Gainulina

Marina Gainulina is a Content Producer for Westpac Wire, with ten years of experience in marketing communications. She holds a Bachelor of Communications & Media (Journalism) degree and a drive to connect with discerning audiences via authentic storytelling across mediums. She has managed editorial and brand comms for the likes of Tiffany & Co., Hugo Boss, NIVEA and GRAZIA.

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