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INFLATION RISES:

WHAT THE LATEST CPI MEANS FOR THE RBA’S NOVEMBER DECISION

By Orrin Shaw

Last week, the Australian Bureau of Statistics released the September quarter Consumer Price Index (CPI) data. The figures show that inflation has picked up, with the annual headline CPI now at 3.2%, up from 2.1% in the June quarter. This marks the first time inflation has moved above the Reserve Bank of Australia’s (RBA) target range of 2–3% since early 2023. The trimmed mean inflation, which strips out volatile price movements and is closely watched by the RBA in setting interest rate policy, also rose to 3.0%, up from 2.7% in the previous quarter.

What’s Driving the Numbers?

The quarterly CPI rose by 1.3%, the largest increase since March 2023. Key contributors included:

  • Electricity (+9%) – driven by higher wholesale prices and reduced household rebates.
  • Housing (+4.7%) – reflecting rising rents and construction costs.
  • Food and non-alcoholic beverages (+3.1%) – due to supply chain pressures and seasonal factors.
  • Transport (+0.8%) – with automotive fuel surging 23.6% following global oil price increases.

Implications for the RBA

With inflation now above the target band, the likelihood of a near-term rate cut has diminished. The RBA is expected to keep the cash rate at 3.6% at its November meeting and maintain a cautious stance into December, with the odds of a November move dropping from 80% to virtually zero and December now seen at only 20%. In fact, markets now price just one more cut in May 2026, barring an unexpected global shock, while the risk of a hike—though distant—cannot be ruled out. Analysts suggest the central bank will prioritise containing inflation before considering any easing measures.

Looking Ahead

Persistent inflation means households and investors should prepare for a prolonged period of higher interest rates. Investors should consider the following:

  • Equities: Companies with strong pricing power may outperform, and companies with high debt levels will continue to struggle with margin pressures.
  • Fixed Income: Short-duration bonds remain attractive to manage interest rate risk.
  • Cash & Term Deposits: Continue to offer competitive returns in a high-rate environment.
  • Diversification: Inflation-linked securities, such as infrastructure assets, and global exposure can help mitigate domestic risks.

Orrin Shaw
Associate Financial Planner
Authorised Representative No. 1292777

If you have any questions or comments, please email me at orrin@gfmwealth.com.au

Disclaimer: This document is not an offer or invitation to any person to buy or sell any interest in or deposit funds with any institution.  The information here is of a generic nature, and does not take into account your investment objectives or financial needs.  No person should act upon this information without firstly seeking competent, professional advice specifically relating to their own particular situation.

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