Australian Inflation Surges to 3.8% in October, Dashing Chances of Near-Term Rate Cuts
Strong CPI print fuels speculation of interest-rate hikes as consumer prices rise for a fourth straight month
Australia’s consumer prices rose 3.8 percent in the year to October 2025, the highest in ten months — a sharp acceleration that has all but closed the door on further near-term interest-rate cuts.
The annual rise exceeded the 3.6 percent median forecast, reinforcing concerns about entrenched inflation.
The trimmed-mean measure of core inflation, which strips out volatile components, climbed to 3.3 percent in October, up from 3.2 percent in September, putting sustained pressure on monetary policy.
The increase occurred even as the government’s electricity rebates helped temper energy cost spikes.
Financial markets reacted swiftly: the Australian dollar rose by 0.5 percent to 0.6502 US dollars, and three-year government bond yields jumped 11 basis points to 3.855 percent — the highest since February.
Investors slashed the likelihood of a rate cut by the Reserve Bank of Australia (RBA) to roughly eight percent for May 2026, down from forty percent, and began pricing in a 32 percent chance of a rate hike by the end of next year.
Broad-based inflation pressures were evident.
Services inflation accelerated to about 3.9 percent annually, while housing costs rose 5.9 percent over the year — even after an electricity-price rebate softened household power bills.
Analysts note that the increase in core prices and widespread cost pressures will make it difficult for the RBA to return to rate cuts.
Some economists now suggest the RBA may even consider raising rates if inflation does not return to the 2–3 percent target band.
The new monthly Consumer Price Index (CPI) data, the first full release under the updated methodology, underscores a shift in the inflation outlook and complicates the outlook for relief on mortgages and cost of living after a year of three rate cuts.
With inflation mounting, households and markets alike brace for a prolonged period of higher borrowing costs and renewed pressure on cost-of-living dynamics as Australia contends with persistent price growth and uncertainty over future monetary policy.
The annual rise exceeded the 3.6 percent median forecast, reinforcing concerns about entrenched inflation.
The trimmed-mean measure of core inflation, which strips out volatile components, climbed to 3.3 percent in October, up from 3.2 percent in September, putting sustained pressure on monetary policy.
The increase occurred even as the government’s electricity rebates helped temper energy cost spikes.
Financial markets reacted swiftly: the Australian dollar rose by 0.5 percent to 0.6502 US dollars, and three-year government bond yields jumped 11 basis points to 3.855 percent — the highest since February.
Investors slashed the likelihood of a rate cut by the Reserve Bank of Australia (RBA) to roughly eight percent for May 2026, down from forty percent, and began pricing in a 32 percent chance of a rate hike by the end of next year.
Broad-based inflation pressures were evident.
Services inflation accelerated to about 3.9 percent annually, while housing costs rose 5.9 percent over the year — even after an electricity-price rebate softened household power bills.
Analysts note that the increase in core prices and widespread cost pressures will make it difficult for the RBA to return to rate cuts.
Some economists now suggest the RBA may even consider raising rates if inflation does not return to the 2–3 percent target band.
The new monthly Consumer Price Index (CPI) data, the first full release under the updated methodology, underscores a shift in the inflation outlook and complicates the outlook for relief on mortgages and cost of living after a year of three rate cuts.
With inflation mounting, households and markets alike brace for a prolonged period of higher borrowing costs and renewed pressure on cost-of-living dynamics as Australia contends with persistent price growth and uncertainty over future monetary policy.
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