Australia’s underlying inflation has re-accelerated, rising to 3% year-on-year in the September quarter and landing squarely at the top of the Reserve Bank’s target band. The trimmed mean — the RBA’s preferred gauge that excludes volatile moves — climbed 1.0% quarter-on-quarter, well above market expectations of 0.8% and, crucially, above the 0.9% quarterly outcome that Governor Michele Bullock said would amount to a “material miss” against the Bank’s August forecast of 0.6%. The upside surprise effectively knocks out hopes of a Melbourne Cup Day rate cut and makes a December move highly unlikely.
CreditorWatch’s read is blunt: “Goodbye pre-Christmas rate cut.” In its post-CPI brief, CreditorWatch notes the trimmed mean print delivered “a more than material miss” to the RBA’s projection, eliminating the chance of a November cut and sharply curtailing the probability of any easing this year. The firm argues the inflation pulse is stronger and broader than the Bank anticipated in August, with many prices now running closer to 3% annually rather than gravitating toward the 2.5% midpoint.
The composition tells the story
Services inflation remains stubborn, edging up to 3.5% from 3.3% in June — a stickiness Bullock has linked to elevated unit labour costs of around 5%. Energy is a key driver: electricity prices rose 4.8% in the quarter and 23.6% over the year as state rebates rolled off, fuelling both household and business cost pressures. CreditorWatch highlights that previously moderating categories such as insurance and new dwelling prices have turned higher again, while government-related charges jumped — including the biggest lift in local government rates since 2014. Even traditionally offsetting goods categories like clothing and furniture are posting positive annual rises rather than providing the usual disinflationary ballast. One small bright spot: monthly CPI rent growth eased to 0.2% in the final month of the quarter.
Headline inflation also re-accelerated, up 1.3% in the quarter and 3.2% over the year — the first annual increase since the December 2022 peak. Housing (+2.5%), recreation and culture (+1.9%), and transport (+1.2%) led the quarterly gains. Markets responded swiftly. Coming into Wednesday, traders were putting the odds of a Cup Day cut at one-in-three; by the afternoon, pricing implied only a slim chance, with December expectations also marked down.
The policy implications are stark.
CreditorWatch expects the RBA to revise near-term inflation forecasts upward toward the top of the 2–3% band, reflecting the fresh data and a labour market the Bank still assesses as a little tight. That combination pushes any easing bias further into 2025 unless growth weakens materially or the unemployment rate climbs faster than expected. As CreditorWatch puts it, the Governor “received the material inflation forecast surprise she wasn’t hoping for,” and any case for easing now likely requires either higher unemployment or a convincing return to softer quarterly prints.
External economists broadly agree on the immediate direction of travel, if not the exact timing. Some — like those at Westpac — are reassessing their rate trajectories given the 3% trimmed mean outcome and the firmer consumption backdrop. Others, including Deloitte Access Economics, still see scope for a December cut if growth proves softer on the back of cost-of-living pressures, but acknowledge the CPI shock complicates that call and elevates the threshold for action.
Against this backdrop, Bullock’s recent framing of the RBA’s dual mandate takes on added weight. “We are conscious that we want to try and keep the unemployment rate as low as we can without fuelling inflation. And how close are we to that? We think we’re close-ish, but it’s very uncertain, so we’ve got to be prepared to consider different possibilities,” Bullock said. “If it looks like we’re wrong on that, then we have to be prepared to change our mind and move.”
For now, the data argue for patience
CreditorWatch sees little “to like” in the quarter’s detail: services still hot, electricity and government charges biting, and several earlier disinflation drivers fading.
With the RBA’s August baseline looking too benign, the central bank will likely keep its powder dry through year-end — barring a negative shock to jobs or growth that changes the calculus as quickly as this CPI print did.