ABE Weekly: Australian RBA Rate Fears Send Consumer Sentiment Tumbling

Market Insights

• Australian RBA Rate Fears Send Consumer Sentiment Tumbling
• Europe’s Winter Gas Reserves Are Low – Is Higher Inflation Next?
• ECB Expected to Increase Cash Rates by 0.25% at September Meeting

Australian RBA Rate Fears Send Consumer Sentiment Lower

Key Points

• Australia: The RBA left the cash rate unchanged at 4.35% p.a. at its August meeting. July CPI eased to 3.5% p.a., while Trimmed Mean was unchanged at 3.60% p.a.
• United States: The Federal Reserve left the federal funds rate unchanged at 3.50%–3.75% p.a. at its July 2026 meeting. The latest U.S. CPI inflation rate eased to 3.4% p.a. in July 2026. Core CPI moderated further to 2.5% p.a.
• United Kingdom: The Bank of England held the Bank Rate steady at 3.75% p.a. at its July 2026 meeting. Headline CPI rose to 2.9% p.a. in July, while Core CPI remained unchanged at 2.6% p.a.
• Eurozone: The European Central Bank left its key deposit facility rate unchanged at 2.25% p.a., and Euro area CPI stands at 2.9% p.a. in July.

Here are the latest monetary-policy and inflation figures for key economies:

Australian RBA Rate Fears Send Consumer Sentiment Lower

The latest Westpac–Melbourne Institute Consumer Sentiment Index provides another sign that restrictive financial conditions are weighing increasingly heavily on households. Sentiment fell 5.2% in September to 84.4, with the decline driven by renewed pressure from higher fuel prices and growing concern that mortgage rates may rise further. Nearly two thirds of consumers now expect mortgage rates to increase, highlighting how quickly the stronger July inflation result has fed into household expectations.

Europe’s Winter Gas Reserves Are Low – Is Higher Inflation Next?

European gas markets are becoming an increasingly important risk for the inflation outlook as Europe heads into winter with inventories well below normal levels. EU storage is currently around 67% full, roughly 12 percentage points below the same time last year, with Germany and the Netherlands particularly exposed at around 54% and 50% respectively. Meanwhile, Dutch TTF prices have risen above €75/MWh, more than double their level a year ago.

The immediate concern is less about Europe running out of gas and more about the price required to secure supply. The European Commission maintains that there is no immediate security-of-supply risk, helped by greater LNG import capacity, diversified supply and structurally lower gas demand. However, with Qatari LNG flows disrupted and European storage still needing to be rebuilt ahead of winter, Europe is increasingly exposed to competition for spot LNG cargoes, particularly if Asian demand strengthens.

ECB Expected to Increase Cash Rates by 0.25% at September Meeting

The ECB is also worth watching closely this week. The central bank is expected to raise rates by 25bp at its September meeting, with the move potentially marking the final hike for now. The timing is particularly awkward for policymakers, with eurozone inflation already above target and energy prices rising sharply. A further increase in gas prices could add to inflation pressures just as the ECB is trying to balance persistent inflation against a fragile growth outlook.

The key transmission mechanism is straightforward: low gas storage increases the risk of higher gas prices, which could feed into inflation and make it harder for the ECB to ease policy. This creates a potentially uncomfortable combination of weaker European growth and renewed inflation pressure, leaving central banks with less room to respond to weaker activity.