Markets gave November rate cuts a 65% chance three days ago. Today’s inflation data dropped that to below 15%. Oliver Hume’s Matt Bell explains what changed and why.
What’s happening: The Consumer Price Index rose 1.3 per cent in the September 2025 quarter and 3.2 per cent annually, according to the Australian Bureau of Statistics, with electricity costs rising 9.0 per cent as the largest contributor to quarterly movement.
Why this matters: The inflation data marks a significant shift in monetary policy expectations and reveals underlying strength in consumer spending and household finances. Trimmed mean annual inflation reached 3.0 per cent, up from 2.7 per cent in the June quarter, marking the first increase in trimmed mean annual inflation since December 2022.
Three days and one inflation data point have dramatically reshaped Australia’s interest rate outlook, effectively eliminating any chance of a November rate cut and casting doubt over further monetary policy easing in 2025.
Following today’s release of the quarterly Consumer Price Index indicator by the Australian Bureau of Statistics, Oliver Hume Chief Economist Matt Bell said the sudden shift in market expectations reflects how significantly the inflation data exceeded Reserve Bank of Australia forecasts.
“What a difference three days and one inflation data point makes! Just three days ago, markets had placed the chance of a November rate cut around 65%, and that was down from closer to 80% a week before that,” Bell said. “Today’s inflation report now has that probability down below 15%, and that still might be too generous.”
Rate cut odds collapse
The CPI rose 1.3 per cent in the September 2025 quarter, the highest quarterly rise since March 2023, with annual inflation reaching 3.2 per cent, up from 2.1 per cent in the June 2025 quarter, according to ABS statistics.
The underlying inflation measure has now reached critical levels. “Underlying inflation is now running at 3.0%, right at the top of the RBA’s target band after the quarterly result came in at 1.0%,” Bell said. “This was in line with market expectations, but well above RBA forecasts and well above a number that might have led to another rate cut in 2025.”
The quarterly result represents the highest annual inflation rate since the June 2024 quarter when annual inflation was 3.8 per cent, the ABS reported.
The dramatic shift has broader implications beyond November. “Not only has any real chance of a cut at the next meeting gone up in smoke, but also probably any chance of a December cut,” Bell said. “It also means that there’s a good chance there is only one cut left in the easing cycle.”
Property market responds
Despite the disappointing news for mortgage holders, Bell noted that property markets have already responded strongly to the three rate cuts delivered to date.
“Mortgage holders and potential property buyers will be disappointed but probably not surprised,” he said. “The three cuts to date have already delivered eight consecutive months of house price increases and big jumps in land sales and prices in various markets.”
The main contributors to the quarterly CPI rise were Housing, which increased 2.5 per cent, Recreation and culture at 1.9 per cent, and Transport at 1.2 per cent, according to the ABS data.
The property sector’s responsiveness to rate adjustments has been notable, with Melbourne’s struggling land market jumping in May and August after rate cuts, demonstrating how swiftly real estate responds to monetary policy changes.
Household strength evident
The inflation data reflects underlying economic resilience rather than weakness, Bell argued. Electricity costs rose 9.0 per cent during the quarter, driven by annual electricity price reviews that came into effect from July 2025 across all capital cities, the ABS reported.
“We have to remember that part of the reason for hotter than forecast inflation is the strength of households and consumer spending evident in GDP and Household Spending reports as well as an historically tight labour market,” Bell said.
The RBA has previously noted this dynamic, with recent data showing stronger consumer spending and higher inflation pressures combining to influence monetary policy decisions, as the central bank balances its mandate to return inflation to target whilst keeping unemployment low.
Annually, electricity costs rose 23.6 per cent, primarily related to households in Queensland, Western Australia and Tasmania having higher out-of-pocket costs compared to September quarter 2024, when state government rebates were in place, according to Marquardt.
Food and non-alcoholic beverages annual inflation reached 3.1 per cent, with meals out and takeaway foods up 3.3 per cent compared to 12 months ago, whilst coffee, tea and cocoa prices rose 14.6 per cent reflecting lower supply from major overseas suppliers, the ABS data showed.
One cut remaining
Bell’s assessment suggests the monetary policy landscape has fundamentally shifted, with implications for property market forecasts extending into 2026.
“If there’s just one cut left in the cycle, that may slightly temper the property market outlook for 2025/26 but not change it significantly,” he said. “Underlying demand remains strong, households are in better and better shape, and we are still in the middle of a generational undersupply in new housing.”
Annual goods inflation rose to 3.0 per cent, up from 1.1 per cent in the previous quarter, due mainly to electricity increases, whilst annual services inflation reached 3.5 per cent, driven by higher prices for rents at 3.8 per cent and medical and hospital services at 5.1 per cent, the ABS reported.
The trimmed mean measure, which filters out extreme price movements, reinforces the underlying inflationary pressure. Trimmed mean annual inflation was 3.0 per cent to the September quarter, up from 2.7 per cent to the June quarter, marking the first time trimmed mean annual inflation has increased since December 2022.
Ben Thompson, CEO and co-founder, Employment Hero said: “This inflation read is a critical indicator for next week’s rate decision, and with the average Aussie anxiously hoping for a rate cut, today’s figure is not the news they want to hear. Three rate cuts to 3.60% haven’t delivered enough relief after a brutal hiking cycle. “Today’s read confirms what Employment Hero’s data has already indicated; our latest Jobs Report shows a mix of wage growth (5% YoY) and stubborn inflation is squeezing companies to absorb costs rather than invest in growth. And the cracks are showing.”
“Businesses are trapped in a holding pattern; They can’t invest for growth with costs rising faster than efficiency. They can’t rely on consumer demand with confidence still subdued, even ahead of peak season. And they can’t expect rate relief with inflation proving sticky. The result is an economy treading water heading into its most important quarter.”
The ABS also released the September 2025 monthly CPI indicator, which rose 3.5 per cent in the 12 months to September, up from 3.0 per cent in the 12 months to August, marking the final release of the monthly CPI before the complete monthly CPI begins publication in November 2025.
The sudden reversal in rate cut expectations underscores the volatility in monetary policy forecasting and the challenges facing the RBA as it balances inflation control against economic growth and housing market stability.
Data sourced from Australian Bureau of Statistics Consumer Price Index, Australia, September Quarter 2025, and statement from Oliver Hume Chief Economist Matt Bell
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