The treasurer is defending his economic strategy, with inflation stubborn and remaining higher than the government wants, as new figures provide hope another rate hike may be avoided.

Annual headline inflation had a slight uptick to 3.8 per cent from 3.6 per cent ahead of the Reserve Bank meeting to decide on interest rates next week. 

Treasurer Jim Chalmers said posting back-to-back budget surpluses and forecasting lower deficits had helped tame inflation over the past two years, as he acknowledged it was a global problem.

“We’re seeing around the world, inflation’s come off a lot, the last mile is more difficult than the rest of it and we got a bit of an indication of that in our own country,” he told ABC Radio on Thursday.

“New data from the Euro area has that even when inflation comes down considerably, as it has in Australia, it doesn’t come down in a straight line and zigs and zags on the way down.”

International and domestic factors putting pressure on inflation were temporary, such as fruit and veg prices, he said.

Inflation was largely in line with the Reserve Bank forecast, Finance Minister Katy Gallagher said, rejecting opposition criticism Labor was spending too much. 

“We believe the decisions we have taken have been very responsible, they’re being targeted indeed to sort of help people with those cost-of-living pressures but not add to the inflation challenge,” she told ABC TV.

“You can see that some of those policies, whether it be energy (bill relief) or some of our rent assistance, are actually putting downward pressure on inflation.”

Shadow treasurer Angus Taylor said the opposition would have cut $45 billion worth of Labor measures from the budget, including some union grants and advertising on tax cuts.

This would have saved $18 billion in associated interest payments, he claimed.

“What you have to do if you want to beat inflation is make sure the economy grows faster than your spending,” he told ABC Radio. 

Eyes have now turned to the housing market, where momentum has been sapped amid a focus on interest rates to see whether it bolsters confidence among prospective buyers and maintain upward pressure on home prices.

National home prices posted their 18th consecutive gain in July, up 0.5 per cent, but three capital cities were down for the month and the pace of growth has slowed.

Thursday’s home value update from real estate data firm CoreLogic followed an agreeable June quarter inflation print that diffused talk of interest-rate hikes and brought cuts back into view.

CoreLogic head of research Eliza Owen said the inflation figures supported the case for the RBA board to hold rates when it meets in August and were broadly a “good news story for housing demand”.

“With growth in the national home value index already slowing, another rise in interest rates would have almost certainly put more downward pressure on demand,” she told AAP. 

“If the cash rate holds steady, this could create greater confidence among prospective buyers.”

Property prices slumped 7.5 per cent when interest rates started going up in May 2022, but property markets have since shrugged off high borrowing costs and gained 13.5 per cent – consistently finding new record highs since November 2023.

In July, mid-sized capital cities continued to grow strongly with dwelling values rising 1.1 per cent in Brisbane, two per cent in Perth and 1.8 per cent in Adelaide.

Home buyers were faring better in Melbourne, Hobart and Darwin, with prices down in all three cities across the month.

This post was originally published on Michael West.