Inflation jumps to 3.2%, dashing hopes of a Melbourne Cup day rate cut for homeowners

Underlying inflation has not accelerated since late 2022, and the major reversal of a multi-year trend of easing price pressures will trigger alarm bells at the central bank before its two-day monetary policy board meeting on Monday.

Economists were quick to rule out any chance of a fourth rate cut on Tuesday, and flagged any further mortgage relief would likely be pushed back deeper into 2026.

Brendan Rynne, KPMG’s chief economist, said resurgent inflation “provides the justification for the RBA to sit on its hands”.

But Rynne said more rate cuts were still “absolutely needed” to kickstart the economy as government support wanes.

“We knew there was going to be an uptick in inflation once electricity rebates were wound back but unfortunately today’s spike is much higher than any of us anticipated,” he said.

The ABS said the main contributor to the headline annual inflation rate was a 24% rise in electricity prices.

This was “primarily related to households in Queensland, Western Australia and Tasmania having higher out-of-pocket costs” than during the same period last year, the ABS said.

Petrol prices fell but there was plenty of evidence that the cost of living was continuing to bite.

Grocery items were 3.1% higher in the year to September, including a 15% rise in coffee, tea and cocoa prices due to issues with overseas suppliers of coffee beans.

Michele Bullock, the RBA’s governor, this week made it clear that a quarterly rise in underlying inflation of 0.9% would be a “material miss”, signalling the monetary policy board would not be prepared to deliver a fourth rate cut next week.

While Australians will feel the bite of higher electricity prices, what has been more concerning for the central bank is the unexpected and unwelcome lift in underlying inflation.

Bullock this week made it clear that the central bank was, for now, more worried about the prospect of resurgent inflation than a recent jump in unemployment.

The governor said the labour market was not about to “fall off a cliff” and that the jobless measure was “still pretty low”.

While the probability of a rate cut in 2025 now appears vanishingly slim, another bad monthly jobs report would make December’s rates decision “much more complicated”, said Cherelle Murphy, the chief economist of EY.