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Surprise jump in prices means interest rate cuts are off the table — for now

RBA expected to hold rates steady as inflation picks up.

29 October 2025

People move through Martin Place in the CBD of Sydney. Picture: AAP Image/Nikki Short

Key points 

  • Inflation rose 3.0% cent year-on-year in September quarter — higher than expected.
  • Consumer spending has strengthened, driven by rising incomes and home prices.
  • The unemployment rate has lifted to 4.5 per cent, but labour market remains tight.

Inflation surprise changes the outlook

The Reserve Bank of Australia (RBA) is expected to keep interest rates on hold at 3.60 per cent next week, after a stronger-than-expected rise in inflation. Commonwealth Bank economists say the latest data means the RBA is unlikely to cut rates any time soon.

The trimmed mean Consumer Price Index — which strips out the most extreme price changes to give a clearer picture of underlying inflation — rose 3.0 per cent over the year to September. That’s well above the RBA’s previous forecast of 2.6 per cent.

“This result will be a genuine concern for the RBA,” said Belinda Allen, Head of Australian Economics at CBA.

“We expect the central bank to take a more hawkish tone to avoid a return to higher inflation.”

Chart from the ABS showing quarterly and annual rates of inflation to September 2025; Source: ABS

Consumers driving the rebound

CBA’s internal data shows household spending has been rising since March, supported by higher incomes and a rebound in home prices. That’s helped businesses recover from recent margin pressures on their profit margins— especially in sectors like recreation and culture, where prices rose more than expected.

While the unemployment rate rose to 4.5 per cent in September, RBA Governor Michele Bullock said this week that the labour market remains “slightly tight”. Economists say it would take a bigger rise in unemployment and softer easing inflation data for the RBA to consider cutting rates again.

What’s next?

The RBA’s updated forecasts, due next week, are expected to show inflation staying higher for longer. With monthly inflation data launching soon, the central bank will be watching closely for signs of persistent price pressures into 2026.

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The information presented is an extract of a Global Economic and Markets Research (GEMR) Economic Insights report. GEMR is a business unit of the Commonwealth Bank of Australia ABN 48 123 123 124 AFSL 234945.



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