Inflation Spike Shakes Markets and Dims Hopes for Rate Cuts
Australia’s latest inflation figures have come in far hotter than expected, sending shockwaves through financial markets and putting the brakes on any near-term hopes for an interest rate cut. The Consumer Price Index, or CPI, jumped 1.3% in the September quarter — the sharpest rise since early 2023 — lifting annual inflation to 3.2%. That’s up from 2.1% in the June quarter and well above what most economists had forecast.
The Australian Bureau of Statistics confirmed that surging electricity prices were the biggest culprit behind this unexpected rise. Power bills jumped by a massive 9% in just one quarter, driven largely by annual price increases that kicked in from July and uneven timing of federal rebates. Some households have yet to receive their government rebates, which further pushed up the apparent cost pressures this quarter.
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As soon as the data was released, markets reacted swiftly. The Australian dollar rallied to nearly 66 US cents, while the ASX 200 dipped around 0.7% as investors reassessed the outlook for monetary policy. The idea that the Reserve Bank of Australia (RBA) might soon cut interest rates has now been largely shelved.
Economists say it’s not just headline inflation that’s worrying. The RBA’s preferred measure — the trimmed mean inflation — also rose sharply, up 1% in the quarter. That brings the annual trimmed mean figure to 3%, which sits right at the top end of the central bank’s target range of 2–3%. In fact, this is the largest quarterly increase in core inflation since early 2024.
Capital Economics’ Marcel Thieliant noted that this was a “material upside surprise” for the RBA, which had only expected a 0.6% lift in the trimmed mean. Given these figures, he said the central bank will almost certainly hold rates steady at its upcoming meeting — and the likelihood of future rate cuts is fading fast.
Despite a recent uptick in unemployment, RBA Governor Michelle Bullock has downplayed that weakness, suggesting the economy is showing signs of renewed strength. With inflation now back at the top of the target band, most analysts believe the RBA will prefer to wait and see how the data evolves before adjusting policy further.
In short, what was expected to be a cooling phase for inflation has turned into an unwelcome surprise. The jump in consumer prices — led by energy costs and broader price pressures — has effectively dashed market hopes for cheaper borrowing in the near future. For households, it’s another reminder that the cost-of-living squeeze isn’t easing just yet.
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