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Inflation rise hurts hopes for rate cut
The market is widely tipping interest rates to remain on hold when the RBA meets next week, after quarterly inflation came in higher than expected.
Trimmed mean annual inflation has accelerated to 3.0 per cent for the September quarter, up from 2.7 per cent in the June quarter and dampening hopes of an interest rate cut next week.
The figures mark the first time trimmed mean annual inflation has increased since December 2022.
Underlying inflation, also known as the trimmed mean, is one of the figures the Reserve Bank of Australia (RBA) is most interested in when setting the official cash rate. The central bank has set a target band for underlying inflation of 2–3 per cent.
Over the year to the September quarter, the consumer price index (CPI) rose 3.2 per cent, jumping from 2.1 per cent in the June quarter, according to data released by the Australian Bureau of Statistics (ABS).
The most significant price rises for the quarter were housing (up 2.5 per cent), recreation and culture (1.9 per cent higher), and transport (up 1.2 per cent).
A 9 per cent rise in electricity costs was a significant contributor to the growth in housing inflation and broader inflation during the quarter.
Annually, the main contributor to the increase in inflation was a 23.6 per cent surge in electricity costs. That was partly driven by state government electricity rebate programs having finished.
The 6.3 per cent rise this year in property rates and charges was the highest since 2014, reflecting increases in general rates in all capital cities, higher waste levies, and additional levies charged by councils.
Property rates and charges typically increase in the September quarter as local councils review their rates and levies.
Annual inflation continued to ease for rents and remains low for new dwellings.
Rental prices rose 3.8 per cent over the year to the September quarter, down from 4.5 per cent to the June quarter.
The change is the weakest annual rise since the September 2022 quarter. The easing in annual rental price growth continues to reflect stable vacancy rates across most capital cities, according to the ABS.
New dwelling prices rose 0.9 per cent over the year to the September quarter, up slightly from 0.7 per cent to the June quarter.
Michelle Marquardt, ABS head of prices statistics, said: “The CPI rose 1.3 per cent in the September 2025 quarter, which is the highest quarterly rise since March 2023. The largest contributor to this quarterly movement was electricity costs, which rose by 9.0 per cent.”
Commenting on the annual inflation rate for the September 2025 quarter, she added: “This is the highest annual inflation rate since the June 2024 quarter when annual inflation was 3.8 per cent.”
Rate cut off the table?
The market is near universally forecasting a rate cut hold next week after quarterly inflation came in higher than expected.
After the inflation data was released, the Commonwealth Bank of Australia (CBA) revised its cash rate outlook and said it was the end of the rate easing cycle.
The major still expects the RBA Monetary Policy Board to leave the cash rate on hold at 3.60 per cent next week in a unanimous decision, but said the “material upside surprise” to the trimmed mean inflation, and its broad‑based nature, meant it now expected the RBA to hold rates for a “prolonged period”.
CBA previously expected one last rate cut in February 2026 to bring the cash rate back closer to neutral.
“Higher inflation and the cyclical upswing in demand now underway, driven largely by consumption and housing, will see the RBA conclude that the economy needs the cash rate to remain in slightly restrictive territory,” CBA head of Australian economics, Belinda Allen, said.
Westpac chief economist Luci Ellis also hinted at a possible forecast revision, saying that it is “conducting a full reassessment for the cash rate outlook in light of both the inflation outcome and the evolving picture on domestic demand”.
Ellis said the September quarter inflation was “materially above RBA’s August forecast” and drives a hold decision at the November meeting.
“But delay now adds to the chances of more cuts next year,” she said.
Australia and New Zealand Banking Group (ANZ) senior economist Adelaide Timbrell said the trimmed mean reading “solidifies” a hold next week.
The major expects the RBA to hold the cash rate until at least February 2026 and is forecasting a unanimous RBA decision to hold next week, despite the recent rise in the unemployment rate.
National Australia Bank (NAB) senior markets economist Taylor Nugent said the lender "continues to expect an extended pause from the RBA, pencilling in a May cut."
This article was originally featured on SPI sister brand Broker Daily.