CPI rises 1.3% in September quarter
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More news: The broad-based “material upside surprise” to September quarter inflation means the Reserve Bank can be expected to “remain on hold from here” and “no more cuts to come”, according to Commonwealth Bank head of Australian economics Belinda Allen.
The bank had previously forecast another 25 basis point cut from 3.60% to 3.35% in February 2026.
What they said: “It would take a material upside move in the unemployment rate and more moderate inflation prints to bring the RBA back to the easing table. Instead, the RBA will now turn more hawkish and look to prevent a return to higher inflation,” Allen said.
“The RBA will have to revise its economic forecasts as part of the Statement on Monetary Policy next week. Economic activity and inflation have been stronger, but the labour market slightly softer.”
Treasurer points to Sept quarter inflation uptick on global economic volatility
More news: Treasurer Jim Chalmers has pointed to global volatility as the reason for the inflation uptick during the September quarter. However, he took a victory lap on government economic management as underlying inflation remained in the Reserve Bank's target band for the third consecutive quarter.
Chalmers noted that while inflation ticked up “it’s much lower” than when the Albanese government came to power in mid-2022. Chalmers also flagged that “the global economy is volatile and uncertain and that impacts inflation in economies around the world”.
“Inflation has ticked up in the most recent data for every major advanced economy, except the United Kingdom where it was flat but remains much higher than here. We’ve also seen core inflation tick up in the Euro area.”
He also said trimmed mean inflation was “almost 5% when we came to office” but has now fallen to 3% as of the September 2025 quarter.
What they said: “Our policies including energy rebates, cheaper child care and our back to back boosts to Commonwealth Rent Assistance have helped to directly reduce inflation when it was at its peak, to allow time for the structural drivers of inflation to settle and for underlying inflation to return to the RBA’s target band,” Chalmers said.
Next rate cut could be after February 2026 following 1.3% CPI lift in September quarter
More news: Economists say rate cut expectations could be pushed beyond February 2026 after September quarter inflation came in higher than expected.
Westpac chief economist Luci Ellis said an interest rate cut said that a February cut is “far from certain now, given the size of the upside surprise this quarter”, although she noted that “delay now adds to the chances of more cuts next year”.
“We are 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.
As signalled by Bullock earlier this week, the high inflation print implies a “material miss” to the upside on inflation, driving expectations for an interest rate hold at the next RBA Monetary Policy Board on 4 November.
Ellis also said that “the upside surprise and emerging consumer recovery also count against a December move”.
ANZ economist Adam Boyton said the "hurdle for any easing this year is now very high”, with the bank expecting a final 25 basis point cut in the first half of 2026.
This puts ANZ’s forecast for a February cut at risk of occurring later, potentially in May after two more quarterly CPI prints, or not at all.
Boyton said that ANZ continues to expect no change in interest rates at the RBA’s upcoming decision. Boyton said he expects this to be unanimously backed by the Monetary Policy Board.
Deloitte Access Economics partner Stephen Smith said that it doesn’t change his forecast for a rate cut in December because the inflation bump from electricity price rebates rolling off was expected.
“Another bounce is expected in the March quarter of 2026. Neither of those moves should influence interest rate deliberations with this data unlikely to sway the next decision,” Smith said.
He also said that “financial market pricing for a November cut has see-sawed over recent weeks in response to firm monthly inflation data and soft labour market results” have been overreactions given their volatility and messaging from the RBA.
State Street Investment Management APAC economist Krishna Bhimavarapu flagged that trimmed mean CPI rose annually for the first time since December 2022, which “more than offsets the impact of the recent rise in unemployment and provides enough justification for the RBA to maintain their outlook”.
CPI rises 1.3% in September quarter
The news: Inflation increased 3% in annual trimmed mean terms over the September quarter and 1% quarter on quarter, above market consensus, according to the Australian Bureau of Statistics (ABS).
This was higher than the 2.7% increase recorded over the year to the June quarter.
The numbers: The consumer price index (CPI) rose 1.3% in the September 2025 quarter in headline terms, taking annual inflation to 3.2%. This marks the highest quarterly rise since March 2023 and the highest annual rise since June 2024.
The market had been expecting annual trimmed mean inflation to come in at 2.7% over the year and come in at 0.8% over the quarter. Headline CPI was expected to come in at 2.9% year on year and at 1.1% over the quarter.
Over the quarter the top contributors to the rise were housing (+2.5%), recreation and culture (+1.9%) and transport (+1.2%).
The rise in housing was driven by a 9% rise in electricity costs as annual electricity price reviews came into effect from July 2025, increasing prices across all capital cities, and the timing of the Commonwealth Energy Bill Relief Fund extension meant NSW and ACT households missed out on payments in July.
The context: On Monday, RBA governor Michele Bullock said the Q3 CPI release would be a "material miss" to RBA's August forecast if it delivered a 0.9% quarter-on-quarter rise in trimmed mean inflation.
Bullock also warned the central bank would need to balance its focus between cutting rates to support employment and responding to stronger-than-expected inflation, though she noted that monthly figures tend to be volatile.
Economists had brought forward expectations for a rate cut following higher than expected unemployment figures released in mid-October after some pushed their forecasts out on a higher than expected monthly consumer price index indicator print in August.
Economists had been waiting on the quarterly inflation data before finalising their predictions for the Reserve Bank's next interest rate decision on 4 November, after rates were held at the last meeting in September.
This is the last release of inflation data before the ABS moves from the release of a monthly consumer price indicator to the full monthly consumer price index print from November.
What they said: "The CPI rose 1.3% 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%," ABS head of prices statistics Michelle Marquardt said.
Marquardt also said the annual inflation rate hit its "highest level since the June 2024 quarter when annual inflation was 3.8%".
The sources: ABS, ABS media release, Westpac research, ANZ research, Deloitte Access Economics statement, State Street Investment Management statement, Treasurer Jim Chalmers media release
