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RBA Assistant Governor Christopher Kent said in a speech today that monetary policy is “somewhat restrictive” and that tightening delivered earlier this year is working through economy. He pointed to higher borrowing costs and mortgage payments, weaker established housing market, stronger Australian Dollar and slowing aggregate demand. Importantly, Kent stressed that this slowdown is deliberate, saying it is “intended and is needed to bring inflation back to target.” He added that estimates of nominal neutral rate, while imprecise, also support assessment that current policy stance is restrictive.

At same time, Kent cautioned that cash rate alone does not determine how restrictive financial conditions have become. Housing appears to have softened “by somewhat more than the recent increase in interest rates would imply,” potentially making conditions tighter than otherwise. But global forces are working in opposite direction. Resilient demand driven by AI-related investment and higher offshore yields linked to rising public debt could make Australian financial conditions “less restrictive than otherwise,” complicating Board’s assessment of how much restraint is actually being delivered.

Comments reinforce RBA’s current policy optionality rather than signaling tightening cycle is finished. Kent clearly acknowledged that higher rates are slowing demand as intended, but he stopped short of saying policy is sufficiently restrictive. Instead, Board will continue “carefully considering the wide range of factors that influence financial conditions and the restrictiveness of monetary policy” as it updates outlook. That fits this week’s hawkish hold: RBA sees tightening working, but still lacks enough certainty over effective restraint to rule out another hike if inflation risks re-emerge.

Key Takeaways

• RBA Assistant Governor Christopher Kent said monetary policy is “somewhat restrictive” and that tightening earlier this year is working through economy.
• Higher borrowing costs, mortgage payments, softer housing, stronger Australian Dollar and slower aggregate demand all point to tighter financial conditions.
• Kent stressed demand slowdown is “intended and is needed to bring inflation back to target,” suggesting RBA does not yet view weaker activity as excessive.
• Housing may be making conditions more restrictive than cash rate alone implies, after weakening more than recent rate increases would suggest.
• Resilient global demand from AI-related investment and higher offshore yields are pulling in opposite direction, potentially making Australian conditions “less restrictive than otherwise.”
• Remarks reinforce RBA’s policy optionality: tightening is working, but uncertainty over effective restraint means Board is not yet declaring tightening cycle complete.

Full speech of RBA's Kent here.

Japan’s producer inflation eased slightly in July, but imported cost pressures remained elevated as weak Yen continued to amplify overseas price increases. Corporate Goods Price Index slowed from revised 7.3% to 7.2% y/y, undershooting 7.4% consensus. Monthly increase moderated from 0.5% to 0.1%.

Electricity was largest contributor to monthly increase, adding around 0.23 percentage point, while declines in energy-related and chemical prices provided some offset. Excluding extra summer electricity charges, index was unchanged from June, suggesting domestic pipeline inflation is no longer accelerating as sharply as earlier in year.

External pressure was much stronger. Yen-based import price inflation eased only slightly from 30.1% to 29.1% y/y, compared with 18.1% to 17.7% on contract-currency basis, highlighting how currency weakness continues to magnify imported inflation for Japanese businesses.

For BoJ, data offer only limited comfort. Softer headline PPI and flat underlying monthly reading reduce urgency for immediate action, but producer inflation at 7.2% and import costs close to 30% remain far too high to dismiss. With BoJ increasingly focused on preventing inflation from overshooting rather than simply generating price growth, persistent currency-driven import pressure keeps normalization case intact even as domestic producer inflation cools at margin.

Data Summary

Key Takeaways

• Japan PPI eased from revised 7.3% to 7.2% y/y in July, undershooting 7.4% consensus, while monthly increase slowed from 0.5% to 0.1%.
• Excluding extra summer electricity charges, producer prices were unchanged m/m, pointing to moderation in underlying domestic pipeline pressure.
• Electricity was largest positive contributor to July increase, adding around 0.23 percentage point, partly offset by declines in energy-related and chemical prices.
• Yen-based import inflation eased only from 30.1% to 29.1%, remaining far above 17.7% increase measured in contract currencies.
• Wide gap between yen- and contract-currency import prices shows Yen weakness is still materially amplifying imported cost pressure.
• Data offer BoJ some comfort on domestic producer-price momentum, but persistently high import inflation keeps broader normalization case intact.

Full Japan PPI release here.

US inflation eased as expected in July, reinforcing case for Fed to stay on hold while it waits for clearer evidence on both prices and labor market. Headline CPI rose from -0.4% to 0.1% m/m, while annual rate slowed from 3.5% y/y to 3.4%. Core CPI increased from 0.0% to 0.2% m/m, with annual core inflation easing from 2.6% to 2.5%. All four readings matched consensus, leaving markets with confirmation of gradual disinflation rather than a fresh policy surprise.

Details were also relatively contained. Shelter rose 0.1% m/m and accounted for roughly two-thirds of monthly headline increase, while food gained 0.1%. Energy prices fell -1.5% m/m, although they were still up 14.7% y/y. Core increases were seen in medical care, airline fares, communication, education and recreation, while motor vehicle insurance declined. Most importantly, core inflation has now returned to 2.5%, matching pre-Iran-war readings from January and February after peaking at 2.9% in May.

For Fed, July report strengthens argument for patience rather than another immediate move. Weak payrolls have already raised hurdle for further tightening, while core inflation at 2.5% remains too high to justify easing. July CPI therefore supports a hold-and-wait stance, with focus shifting toward August employment and inflation data before September meeting. Renewed rise in oil also means July’s benign energy contribution may prove temporary, making August CPI a more important test of whether latest energy shock begins feeding back into broader inflation.

Data Summary

Key Takeaways

• US CPI matched expectations across all four major readings, delivering confirmation of gradual disinflation rather than a fresh policy surprise.
• Headline CPI slowed from 3.5% to 3.4% y/y, while core CPI eased from 2.6% to 2.5%, returning core inflation to its January-February pre-Iran-war level.
• Monthly core CPI accelerated from 0.0% to 0.2%, showing underlying price pressure has not disappeared even as annual rate continues to moderate.
• Shelter rose just 0.1% m/m but accounted for roughly two-thirds of headline monthly increase. Energy fell 1.5% m/m, providing an important disinflationary contribution.
• Weak July payrolls have raised hurdle for another Fed hike, but 2.5% core inflation remains too high to justify near-term easing, reinforcing a hold-and-wait stance.
• July’s favorable energy contribution is already backward-looking. August CPI will be more important for assessing whether renewed oil surge starts feeding into broader inflation.

Full US CPI release here.