Inflation is rising Down Under, dashing hopes of a near-term interest rate reduction.
The Australian Bureau of Statistics (ABS), released its latest quarterly consumer price index (CPI) Wednesday, revealing that both headline CPI and the annual trimmed mean inflation rates are trending up.
The consumer price index (CPI) rose 1.3% in the three months leading up to September, compared with June's quarterly reading of an increase of just 0.7%. For the year leading up to September, the CPI climbed to 3.2%, up from 2.1% in June.
Meanwhile, the trimmed mean annual inflation – which measures underlying inflation by stripping out goods with volatile prices changes and what many consider a better indicator of inflationary pressures – rose to 3% in September, up from 2.7% during the June reading.
This marks the first time in nearly three years – since December 2022 – that the trimmed mean annual inflation has risen. The rising inflationary figures are also outside of the Reserve Bank of Australia's (RBA) target inflation range of 2% to 3%.
The nation's central bank has slashed the official cash rate (OCR) three times in 2025 so far, most recently in August. However, the RBA opted to hold interest rates at 3.6% during its September meeting, citing higher-than-expected inflation and continued economic uncertainty as its rationale.
Mortgage holders and investors, however, have been holding out hope that the bank would once again cut rates at its upcoming November meeting on monetary policy.
But RBA Governor Michele Bullock has been firm that the RBA board has adopted a wait-and-see approach, indicating that future policy decisions will hinge on upcoming economic data. This means inflation and employment must remain at sustainable levels before further monetary easing.
"I'm not going to predict what the interest rate is going to be in the next three to six months," Bullock said in September. "What we're focusing on [in the future] is an interest rate path that will deliver us inflation sustained with the band. That could mean a couple more reductions. It might not. I don't know at this point. And we'll look at all this again in November."
Since then, unemployment has edged slightly higher. But with inflation climbing, the odds of a November rate cut have diminished.
While some economists are still betting on a potential rate cut during the RBA's upcoming meeting, many of the major banks have already revised their forecasts, anticipating the next cut to come sometime in 2026.
"We continue to expect no change in interest rates," Adam Boyton, head of Australian economics at ANZ, wrote in a note. "Given the Q3 CPI increase, we expect the decision will be unanimous, despite the recent rise in the unemployment rate.
"The RBA board does have the option of easing in December," Boyton continued. "That meeting will come after the release of another labour force print and the September quarter national accounts. However, in the wake of today’s CPI outturn, the hurdle for any easing this year is now very high."
In the case of CBA, the major had previously forecasted the next, and likely last, rate reduction wouldn't come until February 2026.
"The material upside surprise to Q3 [20]25 trimmed mean CPI, and its broad‑based nature, mean we now expect the RBA to remain on hold at 3.60% for a prolonged period," Belinda Allen, head of Australian economics at CBA, said following Wednesday's CPI results. "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.
"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," the economist added.
Price increases were most pronounced in the housing sector, which rose 2.5%, quarter-over-quarter. Recreation, alcohol and tobacco, and transport also recorded strong inflationary gains during the period.
For the year, housing rose 4.7%, compared with an increase of just 2.0% in September 2024. Other high yearly increases were in alcohol and tobacco, health and education.
In addition, property rates and charges were higher than they've been in more than 10 years, up 6.3% for the year ending September 2025, compared with an increase of just 4.9% in the year ending September 2024. September's percentage increase was the highest level since 2014, when the annual increase was also 6.3%.
"The rise reflects increases in general rates in all capital cities, higher waste levies and additional levies charged by councils," the ABS said in a statement. "Property rates and charges typically increase in the September quarter as local councils review their rates and levies."
One bright spot was in rents. Inflation on rent is easing, up just 1.0% for the quarter, with all of Australia's capital cities contributing to the rise, the ABS said. For the year ending in September, rents increased 3.8%, down from 4.5% during the June quarter. That's the lowest levels of inflation on rents since December 2022.
"The easing in annual rental price growth continues to reflect stable vacancy rates across most capital cities," the ABS said.
Janine Ashmore, cofounder and director at Darwin-based Bliss Home Loans, added that falling rental prices could keep more potential buyers on the sidelines.
"That's usually what drives people into the market," she told Australian Broker. "When rent prices go up."
By city, rents rose the most in Perth, up 6.4% for the year, followed by Brisbane and Adelaide, both up 4.4% for the year. Rent prices in Melbourne and Sydney also increased, up 3.7% and 3.3% for the year, respectively. It was only in Hobart that rent prices fell, down 0.4% for the year.
Meanwhile, new dwelling prices rose only slightly, with an increase of 0.9% in the 12 months leading up to September, compared with 0.7% during the June quarter, driven by fewer promotional offers and rising base prices from home builders in the last three months, the ABS said.
The RBA plans to meet on 3 and 4 November to discuss monetary policy.
