RBA Rate Cut Hopes Fade as Inflation Surges Beyond Expectations

Australian mortgage holders face disappointment as new inflation data shatters expectations and effectively ends hopes for near-term interest rate cuts. The higher-than-expected figures have forced economists and markets to shift their outlook, signaling that the Reserve Bank of Australia (RBA) may hold rates steady—or even consider a hike—well into 2026.

Inflation Surprise Shakes Market Confidence

Fresh data from the Australian Bureau of Statistics (ABS) revealed that the trimmed mean inflation rate rose by 1.0% for the September quarter, exceeding both the RBA’s forecast and market expectations. The annual rate now sits at 3.0%, above the projected 2.8%.

This unexpected rise has upended previous assumptions of a February rate cut, with some economists now predicting that the RBA will hold its cash rate at 3.6% until at least 2026.

Economists Warn: “The Conversation Has Changed”

VanEck Head of Investments Russel Chesler cautioned that the era of rate cuts may already be over.

“There is a real possibility that we are done with rate cuts in this cycle, and the next move could be a rate increase if inflation doesn’t change course,” he said.

Chesler added that markets have shifted dramatically—from pricing in a 100% chance of a rate cut in February to expecting none before May.

AMP Deputy Chief Economist Diana Mousina called the new data an “economic horror story,” stressing that the RBA can no longer justify cutting rates next week.

“Governor Bullock said a trimmed mean outcome of 0.9% or above would be a ‘material miss,’ and today’s result confirms that,” she noted.

Experts Split on Timing of Future Relief

While most analysts agree rate cuts are off the table for now, opinions vary on when relief might finally come.
Deloitte Access Economics Partner Stephen Smith suggested that the RBA may still consider easing rates—just not until December.

“As electricity price rebates roll off, inflation was expected to bounce in the September quarter. Another rise is likely in March 2026, but this data should not influence immediate rate decisions,” he explained.

Others, like RSM Australia Economist Devika Shivadekar, disagree.

“This renewed momentum is likely to catch the RBA’s attention, and we expect it will prompt them to hold rates steady at next week’s meeting,” she said.

KPMG Chief Economist Brendan Rynne added that the spike in inflation was “much higher than anticipated,” justifying the RBA’s decision to delay rate relief.

Treasurer Defends Government’s Economic Measures

Treasurer Jim Chalmers acknowledged the uptick in inflation but argued that prices remain “much lower than what we inherited.”

“Our policies—such as energy rebates, cheaper childcare, and increased rent assistance—have helped bring inflation down from its peak,” he said.

However, markets reacted sharply to the new data, with the Australian dollar rising and share prices falling, reflecting fears that the RBA will now keep rates higher for longer.

Inflation Data Breakdown

Trimmed mean inflation: 1.0% for the September quarter

Annual trimmed mean inflation: 3.0%

Headline inflation: 1.3% for the quarter, up from 0.7%

Annual headline inflation: 3.2% — the highest since March 2023

EQ Economics Managing Director Warren Hogan warned that rising unemployment could paradoxically push inflation even higher.

“It raises the risk that inflation could start rising again next year. The unemployment rate is not the main game for the RBA,” he said.

Conclusion

With inflation running hotter than expected, the RBA faces renewed pressure to maintain its tightening stance. For Australian households already struggling with high mortgage repayments, the latest data signals that financial relief may be further away than anyone had hoped.