Hotter-than-expected CPI torches Aussie rate-cut hopes

Reuters, Bloomberg, CNBC, and the Guardian contributed to this report.

Australia’s inflation just blew a hole in the “cuts soon” story. Headline CPI jumped 1.3% in the September quarter — the biggest quarterly rise in two and a half years — lifting the annual rate to 3.2% and pushing it back above the RBA’s 2–3% target band. The real shock was core inflation: the trimmed mean rose 1.0% on the quarter, well above forecasts around 0.8% and the RBA’s own rough guide near 0.6%. On a yearly basis, trimmed mean ticked up to 3.0%, its first acceleration since late 2022.

Markets reacted fast. Odds of a Reserve Bank of Australia rate cut next week collapsed to about 8%, with December priced at under 25%. Beyond that, traders now see the cash rate — currently 3.6% — bottoming nearer 3.35% by mid-2026, implying at most one more cut in the entire easing cycle. The Aussie dollar nudged higher toward US$0.66 while three-year government bond futures slid, and local stocks softened as the “higher-for-longer” message sank in.

Under the hood, the price pulse was broad enough to worry policymakers. Electricity bills jumped roughly 9% as earlier subsidies rolled off, local government charges surged at their fastest pace since 2014, and services inflation quickened to 3.5% year over year. Holiday travel and accommodation rose 2.5% amid solid school-holiday demand. Petrol eased, but not enough to offset the stickier parts of the basket the RBA cares about.

Governor Michele Bullock had warned that even a 0.9% core print would be a “material miss.” At 1.0%, it’s hard to argue for near-term easing. Banks that had penciled in an early-2026 finish to cuts are now talking about a longer hold — unless unemployment jumps markedly and inflation relents. For now, the message is simple: disinflation has stalled, the bar for cuts has risen, and the RBA’s priority has swung back to making sure this flare-up doesn’t turn into a comeback.