Australia’s latest inflation figures have come in higher than expected, casting doubt on the prospect of another Reserve Bank of Australia (RBA) interest rate cut next week.
The Australian Bureau of Statistics (ABS) reported today that consumer prices rose 1.3% in the September quarter, nearly double the 0.7% increase recorded in June and exceeding both market expectations and the RBA’s forecasts.
Over the year to September, the Consumer Price Index (CPI) rose 3.2%, up sharply from 2.1% in the previous quarter and above the central bank’s 2–3% target range.
The trimmed mean—the RBA’s preferred measure of underlying inflation—rose 3.0% over the year, indicating that price pressures remain broad-based and persistent. The CPI release represents the final major piece of economic data ahead of the RBA’s Melbourne Cup Day policy meeting.
Housing and Energy Drive Price Gains
Housing costs were the main contributor to the September-quarter rise, with property rates and charges jumping 6.3%—the steepest quarterly increase since 2014—as local councils across the country lifted general rates, waste levies, and other charges.
Electricity prices surged 9.0%, driven by annual price reviews and the timing of rebates from the Commonwealth Energy Bill Relief Fund, according to the ABS.
Travel costs also added to the upward pressure. Domestic holiday travel and accommodation rose 3.2%, while international travel increased 2.7%, reflecting continued strong demand, particularly for European destinations.
Rent inflation moderated to 3.8%, its lowest level since December 2022, and insurance costs eased from last year’s double-digit increases. However, these declines were outweighed by renewed price pressures in other sectors.
Inflation Proves More Persistent Than Expected
The higher-than-anticipated figures confirm that inflation remains more entrenched than policymakers had hoped. Economists suggest that the return to the RBA’s 2–3% target range may now take longer than previously expected.
A Reality Check for the RBA
The RBA has lowered the cash rate three times this year—in February, May, and August—reducing it from 4.35% to 3.6% in an effort to ease financial pressure after a prolonged period of elevated rates.
However, the stronger inflation outcome underscores that the battle against price growth is not yet over.
The central bank now faces conflicting economic signals: inflation remains near the top of its target range, while the labour market continues to cool. Unemployment has risen to 4.5%, job vacancies have declined, and hiring intentions are softening.
Household spending has eased slightly but remains resilient. With inflation still running hot, a November rate cut now appears highly unlikely.
Market Reactions and Outlook
Before the CPI release, traders had been pricing in a possible 25-basis-point cut by Christmas. Those expectations have since evaporated.
According to ASX futures data, markets now assign an 85% probability to no change at next week’s meeting and just a 13% chance of a rate cut—down sharply from around 50–60% before the inflation report.
At the Australian Business Economists annual dinner earlier this week, RBA Governor Michele Bullock said the labour market remained “a little tight,” despite the recent rise in unemployment. The latest inflation data has reinforced that view, with investors now expecting the RBA to hold rates steady for the remainder of the year.
Both Westpac and NAB have revised their forecasts, now anticipating that rate cuts will resume in mid-2026, likely unfolding as a gradual and cautious easing cycle.
A Soft Landing—But a Tougher Road Ahead
Australia’s economy continues to slow, but not stall. Growth remains modest, constrained by subdued household consumption and weaker public spending, while business investment and exports continue to offer some support.
The RBA’s goal of achieving a “soft landing”—cooling inflation without triggering a sharp rise in unemployment—still appears within reach. However, the stronger September inflation print suggests the road ahead may be more challenging.
The Bottom Line
The September-quarter CPI figures serve as a reminder that Australia’s inflation story is not yet over.
While price growth has eased from its 2022 peak, persistent pressures in housing, energy, and services are delaying the return to target.
With the labour market softening but still relatively robust, the RBA is widely expected to keep interest rates on hold next week and adopt a cautious stance until there is clearer evidence that inflation is firmly under control.
For households, rate relief remains on the horizon—just further away than many had hoped.
