Australia inflation data strengthens case for RBA hike

Australia's latest inflation figures have strengthened the case for the Reserve Bank of Australia to raise interest rates again at its next board meeting, according to CreditorWatch. The assessment followed the release of September and third-quarter consumer price index data.

Chief Economist Ivan Colhoun said the monthly and quarterly trimmed mean inflation measures were broadly in line with market expectations, but remained well above the central bank's target range. He said recent fuel price rises had added to pressure on the RBA to tighten policy again.

Figures cited by CreditorWatch showed the monthly trimmed mean rose 0.26% in September, against a market expectation of 0.3%, while the quarterly trimmed mean rose 0.996% in the third quarter, compared with an expected 1.0%.

Annual inflation also remained elevated. The monthly trimmed mean stood at 3.6%, while the quarterly trimmed mean was 3.7% - levels Colhoun said were too high for the RBA to be confident inflation would return to its 2.5% target by late next year.

Headline inflation was higher still, reflecting another sharp rise in fuel costs. Fuel prices rose 9.4% in September after a 14.8% increase in August, and CreditorWatch said a further 8% monthly rise was likely in October.

The monthly headline inflation rate rose to 4.3% from 4.0%. CreditorWatch also said the December quarter CPI was on track to show a 15% to 20% quarter-on-quarter increase in fuel-related pressure.

Broad price pressures

Colhoun said the breadth of price growth across the CPI basket was a key concern for policymakers. According to the analysis, just 13% of the monthly CPI basket was recording inflation below the 2.5% target, while 87% of the index showed annual price increases above 3.2%.

More than half the index, or 53%, recorded annual price rises above 4%. Colhoun said that made it difficult to see inflation returning to target without further policy tightening.

Services inflation was another focus, as the RBA watches it for signs of domestic capacity pressures. Several market services categories continued to post annual inflation above 4%, including hairdressing at 4.1%, meals out and takeaways at 4.0%, and other household services at 4.7%.

"While both outcomes were at market expectations, annual rates of inflation of 3.6% y/y for the monthly trimmed mean and 3.7% for the quarterly trimmed mean remain clearly too high for the RBA Board to be confident that the tightening implemented to date this year will be sufficient to return inflation to 2.5% by late next year," Colhoun said.

He also pointed to the effect of energy costs on the outlook. "This is likely to be especially the case given additional pass through of currently very high fuel prices is likely to occur in the next few months," he said.

Housing and retail

Not all components moved in the same direction. Newly constructed dwellings, a major part of the housing group, recorded no price change after a subdued 0.2% increase in the previous month.

CreditorWatch noted the Australian Bureau of Statistics said some builders had lifted base prices because of higher materials costs, while others had offered discounts in response to weaker demand.

Rents still rose 0.3% in the month after accounting for the operation of the Commonwealth Rent Assistance scheme. That pace remained broadly equivalent to an annual rate of 3.6%, although rising vacancy rates suggested rent growth could slow over time.

Elsewhere, toys, games and hobbies posted another strong monthly increase, rising 5.2% after an 11.4% jump in September. CreditorWatch linked the move to higher prices for memory and storage devices associated with artificial intelligence demand.

Rate outlook

Colhoun said recent public remarks by senior RBA officials had already pointed to a firmer stance on inflation. He said the latest CPI results reinforced that message and increased the likelihood of another rate rise.

"Only a revolt by the rest of the Board or some significant accident in markets would likely see no rise in interest rates occur next week," Colhoun said.

He added that the central bank could then pause to assess the effects of policy tightening on the economy. "Thereafter, I'd expect the Board to leave interest rates unchanged until at least February, while it observes the impact of its actions during 2026 on the economy and track of inflation," he said.