Caffeine lovers hit with 14 per cent price surge as inflation jumps

The largest spike in the cost of coffee in a generation has helped nudge the inflation rate to its highest point in a year, delivering the Reserve Bank a headache that may delay another interest rate cut.

Figures from the Australian Bureau of Statistics released on Wednesday revealed its monthly measure of inflation jumped to 2.8 per cent in July and well up on the 1.9 per cent recorded to June.

The single largest factor in the surprisingly large uptick was a surge in electricity prices, which rose 13 per cent in July as some Australian households waited for the latest round of energy rebates to take the edge off their energy bills.

Households in NSW and the ACT will not receive their latest Commonwealth energy rebate until August, after the previous round of rebates wound up. The jump in electricity prices also reflects an increase as the annual electricity price review came into effect.

But the power price rise was well short of what is going on in the country’s cafes and restaurants, with prices for coffee, tea and cocoa jumping by 2.2 per cent in the month to be 14.4 per cent higher over the year. The last time coffee prices increased by so much in a 12-month period was in 1997.

The bureau noted the spike was largely due to poor weather conditions in key coffee-growing countries, including Brazil – the world’s biggest coffee bean producer.

Brazil is also the target of Donald Trump’s ire, with the global spot price for beans surging almost 30 per cent over the past eight weeks after the US president announced plans to hit the country with a 50 per cent tariff on all exports to the US.

This prompted a lift in demand by US roasters trying to import Brazilian beans before the tariff was put in place, pushing up global coffee prices. Bloomberg News last week reported that Starbucks is cutting production by two days a week at its five US roasting plants because of spiralling costs.

For people wanting a serve of eggs with their morning coffee, the figures show they are in real financial pain.

The restocking of Australia’s chicken flock due to the cull to curtail the spread of avian flu continues to push up egg prices, which have climbed by 18 per cent over the past 12 months. This was slightly down on the 19.5 per cent record set in June. A year ago, egg inflation was running at 6.7 per cent.

Another factor was an unexpected lift in travel inflation as parents and their children faced a 4.7 per cent increase in accommodation and domestic airfare prices during the July school holidays.

Treasurer Jim Chalmers said the inflation numbers came in “a little higher” than economists were expecting, but that they also showed pressures easing in some parts of the economy.

“We know the monthly inflation figures can jump around a bit,” he said. “They’re less reliable than the quarterly figures and don’t compare the same basket of goods and services from month to month.”

Rents – which Chalmers said would have risen 5.1 per cent if the government had not lifted rent assistance – rose 3.9 per cent in the year to July: the lowest annual growth since November 2022.

Annual trimmed mean inflation – the gauge most closely watched by the Reserve Bank – also lifted more than expected to hit 2.7 per cent.

Moody’s Analytics head of Australian economics, Sunny Kim Nguyen, said the numbers should not prevent the Reserve Bank from a rate cut later this year, but it did highlight the potential danger of inflation.

“Not all of this strength will persist. The electricity pickup is largely mechanical and should partially unwind when rebates flow through in August, while seasonal travel pressures typically fade once school holidays end,” she said.

“Even so, the core measure, which strips out the noisy stuff, reminds us that service prices haven’t fully cooled and that inflation is still hovering a little above the comfort zone.”

AMP economist My Bui noted that the numbers were quite strong with a growing share of goods now showing annual price rises of more than 3 per cent.

But she said price rises were still moderate or low for a majority of the goods and services tracked by the bureau.

“We see rate cuts in November this year as well as February and May next year, after the Reserve Bank receives the full quarterly inflation report,” she said.

Cut through the noise of federal politics with news, views and expert analysis. Subscribers can sign up to our weekly Inside Politics newsletter.