Australia’s first complete monthly inflation report shows prices rising faster than needed to hit targets. CreditorWatch’s Ivan Colhoun explains why rate cuts remain distant.
What’s happening: Australia’s inaugural complete monthly Consumer Price Index shows trimmed mean inflation rose 0.3% in October, translating to 3.3% annually.
Why this matters: For businesses and mortgage holders hoping for relief, the message is clear: price pressures remain too strong for the central bank to ease monetary policy in the near term.
Australia’s first complete monthly Consumer Price Index has delivered an uncomfortable reality check for businesses and households hoping for interest rate relief, with experts warning the shallow easing cycle may already be over.
The October data, released by the Australian Bureau of Statistics, showed monthly trimmed mean CPI rising 0.3%, with the annual rate climbing to 3.3% from September’s 3.2%. Headline inflation accelerated to 3.8% year-on-year, up from 3.6%, at the top end of market forecasts.
According to CreditorWatch Chief Economist Ivan Colhoun, the figures confirm a difficult truth about Australia’s inflation battle.
“Monthly CPIs (whether trimmed mean or headline), need to average a smidge over 0.2% month-on-month to be consistent with inflation at 2.5%, the midpoint of the RBA’s target,” Colhoun states. “Today’s monthly trimmed mean of 0.3% month-on-month (3.3% year-on-year) doesn’t meet that standard.”
Market expectations shift dramatically
Financial markets reacted swiftly to the release. Matt Bell, Chief Economist at Oliver Hume, noted the immediate impact on rate cut expectations.
“Before today’s inflation data, the market had just under a 50% chance of one more rate cut in the cycle being delivered at the May 2026 meeting,” Bell states. “Within half an hour of the release, that number had fallen to below 30%, with the market essentially removing any further rate cuts from the outlook.”
Bell characterised the easing cycle as potentially the shallowest in more than three decades. “It means that this rate cut cycle looks like it will be 0.75% in total, the shallowest easing cycle in more than 30 years,” he explains.
Farhan Badami, Market Analyst at eToro, identified housing as the biggest concern in the data. “Housing remains the biggest pressure point, with annual inflation running at 5.9%. Rents are up 4.2% – even a sharp 10.2% fall in electricity prices can’t soften that blow,” Badami states.
He painted a stark picture for young Australians. “We know how expensive housing is in Australia, and the sad news for young Australians is that the prospect of home ownership continues to drift further away,” Badami observes. “Existing homeowners, on the other hand, shouldn’t anticipate mortgage repayments dropping again anytime soon.”
Colhoun’s analysis confirmed this trend. Rental prices rose 0.3% in both September and October, excluding subsidy arrangements, and appear to have stopped falling. New house construction prices present an even starker picture. After falling in most months between September 2024 and April 2025, prices have been rising again at significant rates, with increases of 0.5%, 0.4%, 0.7% and 0.4% from July to October respectively.
“The trend in rents and construction prices make it extremely difficult for overall inflation to track back to 2.5% any time soon with many services prices still rising well above 3% and the large food group seeing prices continuing to increase at a pace above 3%,” Colhoun states.
Services inflation proves persistent
One of the most concerning elements in the new data is the persistence of services inflation. Prices for market services that surprised sharply upward in the September quarter have continued their trajectory.
Colhoun notes that whilst some categories like meals out and takeaway showed smaller rises in October, this followed previous large increases. “Price rises generally remain strong for hairdressing, dental services and drycleaning,” he observes.
He attributes this partly to wage pressures rather than excessive consumer demand. “I don’t necessarily see this as reflecting excess demand as much as reflecting continuing relatively high rates of minimum wage increases being delivered in the annual national wage case,” Colhoun explains, adding that private sector wage rises remain around 3% to 3.5%, which is too high to deliver at-target inflation given negligible productivity growth.
Wage growth moderating slightly
Ben Thompson, CEO and co-founder of Employment Hero, noted some moderation in wage growth trends based on platform data covering over 300,000 SMEs.
“Employment Hero’s latest platform data over over 300K SMEs shows median pay was up 4.8% YoY in October, but in 2024, wages were up 5%,” Thompson states. “It’s a notable dip, but it’s by no fault of businesses. Employers are still doing what they can to stay competitive amid inflationary pressures, but layers of legislation and increasing cost of compliance mean it’s never been a more expensive or confusing time to be an employer.”
Thompson emphasised that businesses aren’t pulling back by choice. “Businesses aren’t pulling back, but they are feeling restricted and doing what they can to keep their employees and their business above water,” he notes.
Labour market showing strain
Martin Herbst, CEO of JobAdder, highlighted how inflation uncertainty is affecting recruitment and hiring decisions.
“Inflation ticking up again will make employers nervous, and the labour market is already showing signs of strain,” Herbst states. “JobAdder’s latest data suggests economic uncertainty is still the top challenge for 52% of recruitment agencies, and fee pressure affecting 43% of firms.”
He noted workers are becoming more cautious about changing jobs. “We’re seeing workers stay put because changing jobs still feels uncertain in the current job market,” Herbst observes. “Recruiters will need to work harder to build trust with candidates and help employers regain confidence to invest in their labour force ahead of the next growth cycle.”
Small business cost pressures mount
Grant Austin, CEO at pay.com.au, emphasised the acute impact on small and medium businesses, particularly in the hospitality sector.
“Today’s release of the October Monthly CPI shows headline inflation is rising. It illustrates the reality for small business owners that underlying operational costs continue to remain stubbornly high,” Austin states. “This inflation is driven by persistent, crucial factors that continue to erode SMB cash flow, irrespective of short-term consumer subsidies.”
Austin highlighted the services sector inflation spike to 3.9% as particularly concerning for SMBs. “For SMBs, this translates to increased costs of doing business. Inflation in rents, wages and insurance premiums, coupled with supply chain pressures, makes it even more challenging for small businesses like cafes and restaurants to scale or hire,” he explains.
The consequences have been severe. “Tellingly, one in 10 hospitality businesses closed in FY25 as a result of rising cost pressures,” Austin notes, referencing recent data showing hospitality closures have soared to record levels nationwide.
Austin advised businesses to focus on working capital efficiency. “To build financial agility and counter this sticky cost inflation, SMBs must prioritise working capital efficiency,” he states. “The best safeguard against profit erosion is not cutting costs, but optimising every dollar spent and maximising the use of existing resources.”
Policy implications clear
Badami summed up the broader implications for monetary policy. “The RBA’s November outlook already anticipated a slow journey back to the 2 to 3% inflation target. Today’s data extends the timeline to recover even further, especially given stubborn non-tradable pressures like rents and the fading effect of Rent Assistance,” he states.
He warned of potential further tightening. “This pretty much confirms the RBA’s easing cycle might be over before it really started, potentially locking in that 4.35% cash rate through mid-2026 at least. If inflation doesn’t get any better, it could even add pressure on the RBA to increase rates,” Badami observes.
The RBA recently revised its inflation forecasts, showing inflation remaining above 3% until the third quarter of 2026.
Property market implications
For the property market, Bell noted the impact would temper expectations whilst not derailing activity entirely.
“On the plus side, we do have continued strong underlying demand, rising consumer sentiment, households are in better and better shape, and we are still in the middle of a generational undersupply in new housing,” Bell states. “These are all positive for further increases in property market activity and price.”
However, he cautioned that the boost from rate cuts would be more limited than in previous cycles. “2026 is still probably going to be a good one for property, both land and established housing markets, but today’s data has tempered the upside,” Bell concludes.
Colhoun maintained he has limited confidence in the RBA’s ability to forecast accurately in the current environment. “I don’t have a lot of confidence in the ability of the RBA’s models to capture the very large and diverse influences currently impacting on the economy or prices (think AI, geopolitics, tariffs, climate change for a start),” he states.
For businesses and households alike, the message from October’s inaugural complete monthly CPI is sobering. Whilst goods inflation continues to moderate, persistent services inflation and re-accelerating housing costs mean relief from high interest rates remains distant, with the Australian economy facing an extended period of elevated borrowing costs.
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