SYDNEY: Australia’s core inflation came in stronger than anticipated in October, suggesting the Reserve Bank (RBA) will remain on the sidelines as it tries to assess whether the economy is running beyond its speed limit.
The currency and the yield on policy sensitive three-year government notes climbed after the closely-watched trimmed mean gauge of consumer prices, which shaves off volatile items, advanced 3.3% from a year ago, official data showed yesterday.
That’s above the top of the RBA’s 2% to 3% target band and compared with a forecast 3% increase.
The data support the RBA’s assessment that its efforts to rein in core inflation have hit a hurdle and sent money markets boosting the odds the central bank will remain on hold for the foreseeable future.
Goldman Sachs Group Inc and Commonwealth Bank of Australia are among a handful of economists that reckon the easing cycle has ended, though most see another cut around mid-2026.
The data showed headline inflation came in at 3.8%, also exceeding forecasts.
“Disinflation has stalled,” said Sunny Nguyen, head of Australia economics at Moody’s Analytics.
“For a board that has just acknowledged its previous inflation forecasts no longer fit the current data, the October figures again lean toward the more persistent inflation narrative. Markets are likely to conclude that any discussion of easing will be pushed well into mid or late 2026.”
The Australian dollar advanced 0.4% and three-year government bond yields climbed seven basis points.
Some economists said the hot print suggests the RBA may have to consider bringing rate hikes back onto the table.
“Unfortunately, inflation is high enough that the RBA may have to give serious consideration to raising rates,” said Callam Pickering, an economist at global job site Indeed Inc.
“It’s not certain, but households should brace themselves for the worst type of Christmas present.”
Harry Murphy Cruise, head of economic research at Oxford Economics, concurred with that view.
On Tuesday, Commonwealth Bank of Australia said the RBA may shift to raising rates next year if price pressures remain stubbornly strong and the labour market tightens further.
“The RBA will likely stay on hold for now after the hot inflation readings in October. The new complete monthly consumer price index (CPI) data suggest the third-quarter inflation spike is transitory. Even so, it will take further observations to confirm the disinflation trend we project remains intact,” said Bloomberg Economics economist James McIntyre.
This is the inaugural release of monthly inflation data, replacing a previous partial monthly CPI indicator.
The quarterly inflation report is set to remain the key reading for policy makers until they’re confident that any bugs in the new monthly release have been ironed out.
The RBA focuses on the trimmed mean measure because it strips out volatile swings such as fuel and fruit and better reflects domestic demand pressures.
In addition, the impact of the unwinding of government energy subsidies to households shows in headline CPI, not the trimmed mean.
Last week, assistant governor Sarah Hunter that the labour market was operating slightly beyond what can be sustained with inflation at target even as policy makers try to gauge how close the economy is to full employment.
Australian unemployment declined to 4.3% in October as the economy added more jobs than anticipated.
Meantime, annual wage growth remained elevated last quarter, underscoring the persistent tightness in the labour market.
The RBA is maintaining a cautious and data dependent stance following three interest rate cuts this year to bring the cash rate to 3.6%. — Bloomberg
