The Reserve Bank of Australia finds itself in a tight spot once again, with signals pulling in different directions. Those signals, particularly last week's inflation figures, suggest Australians may not see a rate cut for some time - certainly not today, as a horse race supposedly stops a nation.
Morningstar market strategist Lochlan Halloway says the growth–inflation trade-off has become more uncomfortable as labour-market slack builds even while price pressures prove sticky.
“The labour market is softening, with unemployment a full percentage point above the mid-2022 trough,” he says. “In isolation, that would probably justify easing. But price pressures remain uncomfortable, particularly in housing and market services: dining out, recreation, financial services.”
Inflation rises
The latest data underline that tension. Figures released last Wednesday showed trimmed mean inflation rose 3% in the year to September, hotter than consensus and right at the top of the RBA’s 2%–3% target band. That backdrop has effectively taken a near-term rate cut off the table this Tuesday, and, in Halloway’s view, raises the bar for any easing until the central bank is confident inflation is heading decisively lower.
“That means further easing is unlikely until mid-2026,” Halloway says. “Some economists are now calling for no more cuts, and that scenario can’t be ruled out entirely.”
Rate hold 'all but set in stone'
Consumer-side sentiment tells a similar story. Speaking ahead of Tuesday’s RBA decision, Compare the Market economic director David Koch said a rate hold was all but set in stone after the September quarter CPI figures showed the biggest jump since March 2023.
"You get a sense just talking to people that living costs are going up and inflation is bouncing back up. Compare the Market's Household Budget Barometer found 93% of people believe there has been no easing in the cost-of-living crisis. Energy rebates were keeping that inflation figure artificially low. Now they have rolled off, we're seeing energy price rises in full effect – and it's hurting," Koch said.
"If inflation keeps coming in like this then we might not see any cuts at all. The nightmare scenario is that this is the first sign of inflation starting to trend up again. If that's the case, we could even see the Reserve Bank increase the cash rate in the first half of next year.
"We've all been fed this line by a lot of economists that we could see two or three more rate cuts in the coming months. I reckon the idea of any more rate cuts in the next six-nine months is seriously in doubt now.
"My guess is that we won't see a rate cut for at least six months, unless the December quarter inflation figure, which is out at the end of February, shows some dramatic improvement.
"People are still getting hit by price rises. Hopefully this is a reality check for governments to align their policies a bit more on this because inflation isn't an inanimate object – it's being driven by many factors in the economy and government projects can have a big influence."
Click on the video link here to hear Kochie's reasoning.
For households waiting on relief, Koch’s advice is to focus on negotiable savings rather than policy moves.
"If you're waiting for the Reserve Bank to move then you could be waiting a long time - and that means missing out on potential savings in the meantime," Koch said.
"Take a look at what rates are leading the market. If your bank won't match them, it might be time to switch over."