Interest rate outlook uneasy as underlying inflation persists

Underlying inflation appears to have reached its peak in Australia, but borrowers are not yet in the clear when it comes to a chance for further rate hikes in 2026.New figures from the Australian Bureau of Statistics (ABS) on Wednesday show the Consumer Price Index (CPI) rose 3.5% for the 12 months to July, down from 3.8% in June.The data, while hotter than economists had been expecting, shows volatile prices across the country are beginning to ease after six months of war-induced price pressures from the Middle East conflict.Underlying inflation is a concern and paints a less volatile picture of Australia’s inflation position by stripping out very high or low prices and has yet to budge.The trimmed mean, which is the measure of underlying inflation, came in unchanged from June at 3.6% for the 12 months to July.It's a finding likely to raise concern that more tightening could be needed to bring inflation back into the RBA's 2-3% target range.The Reserve Bank's target range for inflation is 2-3%. Picture: GettyReading between the linesThe month-to-month costs of food and fuel are often left out of the trimmed mean – prices which have been the most challenged over the last few months...