The monthly consumer price index skyrocketed from 1.9 per cent to 2.8 per cent, wrong-footing economists who had predicted the annualised rate to climb to 2.3 per cent in figures released by the Australian Bureau of Statistics on Wednesday.
"This is the highest annual inflation rate since July 2024, following several months of easing inflation," ABS head of prices statistics Michelle Marquardt said.
The surge was driven by a 13 per cent rise in electricity prices over the month, due to government energy rebates for NSW and the ACT not kicking in until August.
The timing of energy rebates has made the headline inflation figure especially volatile of late.
But worryingly for the RBA, less volatile figures that exclude items like electricity that tend to jump around more also rose above expectations.
The annual trimmed mean rose from 2.1 per cent to 2.7 per cent, while the CPI excluding volatile items and holiday travel measure rose to 3.2 per cent, above the central bank's two to three per cent target band.
While the jump in the monthly data will be unwelcome news to the RBA ahead of its upcoming meeting in late September, the board places greater emphasis on quarterly figures, which are not due to be released until October.
Sean Langcake, head of macroeconomic forecasting for Oxford Economics Australia, said excluding electricity costs, inflation was still relatively well contained.
"The RBA is likely to wait until they have full information on inflation in Q3 before changing policy settings," he said.
"Despite some upside in these data, we expect a fairly benign print for core inflation in Q3 overall, which will pave the way for a November rate cut."
In its latest meeting minutes released on Tuesday, the RBA board expected the unwinding of energy rebates would boost the headline inflation rate over 2025 and 2026.
Money markets were pricing in the chance of a September rate cut at slightly above one-third, but following the ABS release, odds were cut back to less than three-10ths.
Food, alcohol and tobacco also drove prices higher, while growth in rents slowed to 3.9 per cent annually - the slowest rate since November 2022.
Holiday travel and accommodation prices also rose strongly.
The Westpac-Melbourne Institute leading index, which draws on a range of domestic and international data points to paint a picture of future economic growth, ticked up slightly in July but still indicates growth will remain sluggish in coming months.
"The recovery that started to take shape in last year continues to proceed slowly," said Matt Hassan, Westpac Economics head of Australian macro-forecasting.
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