Inflation’s New Jump and What It Means for Interest Rates
Let’s talk through what’s happening with inflation right now, because the latest numbers have stirred up quite a bit of concern — especially for the Reserve Bank as it approaches its next interest rate decision.
According to the newest monthly figures, inflation has risen from 3.6 per cent in September to 3.8 per cent in October. On the surface it may look like a small bump, but it carries a lot of weight, particularly because this is the first full release of the new Monthly Consumer Price Index. Australia has officially shifted from quarterly CPI data to a complete monthly measure, something the ABS describes as a major upgrade in how inflation is tracked. The advantage is quicker, more frequent insight into price changes, but as ABS statistician David Gruen pointed out, monthly data is naturally more volatile, so some adjustment — and future revisions — are expected.
Housing has again been the biggest driver of inflation, climbing 5.9 per cent over the year. Rising rents, higher electricity costs, and pricier new home builds all played a role. Electricity in particular has been a huge contributor: annual electricity inflation surged above 37 per cent. Yet, interestingly, electricity prices have actually been falling month-to-month in recent months. The catch is that the big electricity subsidies from last October have now rolled out of the annual calculation, making today’s numbers appear much higher even though current prices have dipped. It’s one of those quirks of inflation math that can feel counterintuitive.
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Food, recreation, and cultural spending also nudged prices upward. And all of this lands at a moment when wage growth has flattened. Workers did see real wage gains over the past year, but economists warn that rising inflation and slowing wage growth could erase that progress quickly.
Now, the big question: what will the Reserve Bank do?
Economists aren’t expecting the RBA to cut rates at its December meeting — in fact, some say a rate hike might even be on the table. With the next board meeting not scheduled until February, the bank may feel pressure to act sooner rather than later if inflation keeps drifting upward. Some experts argue that the recent cycle of small rate cuts may already have reached its end. Others note that because the monthly CPI system is so new, the RBA will treat the data cautiously. Still, the unexpected strength in October’s numbers complicates things, and it’s likely to influence the bank’s thinking about 2026.
So, while households continue to feel the squeeze and the RBA weighs its options, one group remains comfortably insulated: energy and gas producers. Their windfall profits — boosted by global gas price spikes after Russia’s invasion of Ukraine — remain largely untouched by Australia’s tax system, even as inflation pressures ripple through the rest of the economy.
It’s a complicated picture, but for now, inflation is edging higher, and the path ahead for interest rates just became a lot less predictable.
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