The Reserve Bank of Australia (RBA) is under pressure to revise its inflation forecasts upwards after the latest quarterly figures significantly exceeded expectations, effectively eliminating any possibility of a rate cut on Melbourne Cup Day. Core inflation rose 1 per cent in the September quarter, surpassing the RBA’s forecast of around 0.6 per cent. This has prompted markets to drastically reduce expectations for further rate cuts this year, with bond traders now seeing virtually no chance of a cut at the upcoming meeting, leaving the cash rate at 3.6 per cent. The RBA is Australia’s central bank responsible for maintaining price stability and full employment. It implements monetary policy, issues currency and oversees the payments system.
Economists anticipate that the RBA will acknowledge persistent price pressures in its updated forecasts, which will be released alongside the cash rate decision. Matthew Sherwood, head of investment strategy at Perpetual, suggests Governor Michele Bullock will face intense scrutiny regarding the RBA’s inflation forecasts, which he views as overly dovish. Sherwood highlighted the RBA’s misjudgment of services inflation and rising labour costs, describing the September quarter CPI forecast as “a pretty significant miss”.
AMP deputy chief economist Diana Mousina also expects the RBA to revise its forecasts, stating that hopes for a November rate cut are now “thrown out the window”. While near-term inflation projections will likely increase, Mousina anticipates that trimmed-mean inflation could still be around or slightly above the midpoint of the target by late 2026. Westpac’s economists echoed this sentiment, noting that the hotter-than-expected CPI has likely deterred the RBA from considering a cash rate cut in November and pushing back the next move lower in rates to mid-2026.
Global markets ended October on a positive note, with US stocks edging higher. The S&P 500 index rose 0.3 per cent to 6840.20, marking its sixth consecutive monthly gain. Attention now turns to the upcoming US non-farm payrolls data and the Bank of England’s meeting, where the cash rate is expected to remain unchanged.
