Fresh data from the Australian Bureau of Statistics shows trimmed mean inflation, the figure the Reserve Bank of Australia (RBA) watches most closely, jumped 1.0% for the September quarter, lifting the annual rate to 3.0%. That’s not just above the RBA’s comfort zone, it’s right at the top of it, and higher than market expectations of 2.8%.
In short, inflation isn’t cooling fast enough. And that’s a problem.
Why This Matters for Mortgage Holders
Markets had been quietly betting on a rate cut as early as the next RBA meeting on the 4th of November. Not anymore.
With the latest data showing inflation still running hotter than expected, with electricity prices leading the charge thanks to the winding back of energy rebates, the central bank’s next move could actually be up, not down.
As VanEck’s Head of Investments and Capital Markets, Russel Chesler, put it bluntly:
“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.”
That’s not what homeowners wanted to hear. The “conversation about rates,” he said, has completely shifted, from a sure-thing cut in February, to whispers that we may not see one until mid-2026.
Stagflation
Adding to the unease, the recent uptick in unemployment has sparked talk of stagflation, that nasty mix of high inflation and rising joblessness that can stall an economy.
Governor Michele Bullock has downplayed the risk, noting that the labour market remains “tight.” But if inflation keeps edging higher while employment weakens, the RBA may find itself in a no-win scenario: lift rates and risk job losses or hold firm and risk inflation becoming entrenched.
Neither option feels particularly comforting.
The Global Angle: Australia vs the US
The inflation surprise didn’t just move expectations, it moved markets.
The Australian dollar jumped, as traders bet the RBA will keep rates higher for longer, especially while the US Federal Reserve cut its benchmark rate by 0.25%.
This divergence between Australian and US monetary policy could give the Australian dollar more strength in the short term, but it also means local borrowers will likely stay under pressure for longer than their overseas counterparts.
Economists Split - But None Are Celebrating
Reactions from Australia’s top economists were swift - and sobering.
- AMP’s Diana Mousina called it an “economic horror story”, noting that even a 0.2-percentage-point miss is significant when it comes to inflation data.
- KPMG’s Brendan Rynne said the spike was “much higher than any of us anticipated,” validating the RBA’s cautious stance.
- Deloitte’s Stephen Smith expects eventual relief - but not before December, and possibly not until next year.
- RSM’s Devika Shivadekar warned that the RBA will likely “hold its powder dry” for now, especially with discretionary spending still strong through the school holiday period.
In other words: no one’s expecting a Christmas miracle.
So, What Happens Next?
Treasurer Jim Chalmers tried to put a positive spin on the numbers, reminding Australians that inflation is “much lower than what we inherited.” That’s true, but today’s spike underscores how fragile the recovery still is.
In my opinion, if inflation keeps tracking at the top of the RBA’s target band, the next move could very well be a rate increase, not a cut. And for homeowners, that means they may need to brace for the possibility that higher repayments will be with us longer than expected.
As always, this doesn’t mean panic. It means planning.
Whether you’re an investor, a first-home buyer, or simply trying to manage your mortgage more strategically, the message is clear: don’t build your budget on rate-cut hope. Build it on what’s actually happening.
