Australia’s Q3 core inflation jumps in major roadblock for rate cuts

[SYDNEY] Australian consumer prices rose by the most in over two years in the September quarter as electricity and local government charges climbed, while a shockingly large jump in core inflation seemed to rule out a near-term interest rate cut.

Investors gave up any remaining hopes for a rate cut from the Reserve Bank of Australia next week, which is now just 8 per cent priced in, down from 40 per cent before the data. The chance of a cut in December is now seen as less than 30 per cent.

Rates are seen bottoming at 3.35 per cent by mid-2026 from the current 3.6 per cent, implying just one remaining cut in the easing cycle.

“The upshot is that inflation is too hot and too widespread for the RBA to consider a November rate cut,” said Ben Udy, lead economist for Oxford Economics Australia.

“While the uptick in the unemployment rate in September had created a tricky situation for the bank to navigate, the strength of the Q3 inflation data more than offsets any concern about the labour market.”

Data from the Australian Bureau of Statistics on Wednesday showed the consumer price index (CPI) rose 1.3 per cent in the third quarter, topping forecasts of a 1.1 per cent increase.

Annual CPI inflation jumped to 3.2 per cent, from 2.1 per cent, above the top end of the RBA’s 2 per cent to 3 per cent target band.

Crucially, the key trimmed mean measure of core inflation increased by 1.0 per cent in the quarter, well above forecasts of a 0.8 per cent gain and unwelcome news for the RBA, which had looked for something nearer 0.6 per cent.

The annual pace rose to 3.0 per cent, from 2.7 per cent, the first acceleration since a peak of 6.8 per cent in late 2022.

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The Australian dollar gained 0.2 per cent to 66 cents after the data release, while three-year government bond futures fell 11 ticks to 96.43, the lowest in two weeks.

Rate cut hopes have faded since RBA Governor Michele Bullock said on Monday that even a 0.9 per cent rise in the core measure would be a “material miss” to the central bank’s forecasts, while labelling an unexpected surge in the jobless rate to 4.5 per cent a statistical quirk.

Details of the inflation report showed the largest price gains in the September quarter came in electricity, which jumped 9% as government energy subsidies ended, and local government charges paid by property owners, which surged 6.3 per cent, the fastest pace since 2014.

There was also upward pressure on services costs, with annual services inflation picking up to 3.5 per cent in the quarter. Holiday travel and accommodation prices rose 2.5 per cent, thanks to robust demand over school holidays.

From next month, the bureau will publish complete monthly inflation data, versus partial data at present. But the RBA has said it will still focus on the quarterly reports as the seasonal adjustments in the new monthly reports will take some time catching up. REUTERS