Hot CPI Reinforces RBA Hike Bets, Though Cracks Remain in the Economy

Australian Q3 inflation figures have effectively cemented expectations for another RBA interest rate hike on 3 November. Quarterly trimmed mean inflation accelerated to 1.0% from 0.8% in Q2, lifting the annual rate to 3.7%. That marks the fourth consecutive quarter above the RBA's 2–3% target band, while headline inflation remained elevated at 3.9% y/y.

View related analysis:

Australian Q3 Inflation Fuels RBA Hike Expectations Despite Economic Weakness

Australian Inflation Pressures Extend Beyond Energy

While rising energy prices have contributed to headline inflation, the problem extends beyond fuel. Non-tradables inflation remained elevated at 4.5% y/y, alongside services inflation at 3.8%. Housing inflation also remained relatively high at 5.3%, while new dwelling prices rose 5.3%.

However, inflation is not accelerating across the board. Services, non-tradables and housing inflation have moderated, while tradables inflation accelerated to 2.9% from 2.1%.

This suggests that while domestic inflation pressures remain persistent, the latest acceleration is uneven, with external price pressures playing an increasingly important role.

Persistent Q3 Inflation Strengthens the Case for an RBA Hike

The RBA's Sarah Hunter had already signalled concerns over inflation when her interview aired on 60 Minutes on Sunday. Governor Michele Bullock reinforced the Bank's concerns during Wednesday's parliamentary hearing, warning that inflation remained far too high.

The RBA has also acknowledged that inflation is likely to exceed its August projections, with persistent domestic capacity pressures being compounded by higher global energy costs.

The acceleration in quarterly trimmed mean inflation is particularly concerning. At 1.0% q/q, underlying inflation is running at a pace inconsistent with a sustained return to the RBA's 2–3% target. And with inflation already tracking above earlier expectations, the Bank looks set to revise its inflation projections higher next week.

This content was created by an affiliate of FOREX.com and represents the views and opinions of the author/speakers, not the views and opinions of FOREX.com, StoneX Group Inc., or its subsidiaries. The content has not been independently reviewed by FOREX.com.

RBA Cash Rate Outlook: November Hike Looks Increasingly Likely

Markets are now pricing over an 80% probability of a November RBA rate hike, with the Q3 inflation figures reinforcing expectations of further monetary tightening.

The market-implied cash rate path also shifted around 6–8 basis points higher across much of 2027 following the CPI release, pointing to a peak near 5% around the middle of next year.

I doubt the RBA will follow up with another hike in December. However, next week's updated Statement on Monetary Policy should provide greater insight into its appetite for further tightening in 2027.

My base case is that the RBA retains a hawkish bias, potentially leaving room for one further hike in H1 2027.

Weakening Economic Conditions Could Limit Further RBA Tightening

While persistent inflation makes a November hike difficult to avoid, the broader Australian economy gives the RBA reason to remain cautious about further tightening.

Employment has weakened, unemployment has risen to 4.7%, and consumer and business sentiment remain subdued. NAB business confidence fell to -13 in September, while business conditions slipped into negative territory.

The November decision itself may be relatively straightforward. The greater challenge for the RBA will be bringing inflation back under control without placing unnecessary strain on an already weakening economy.

And that could ultimately determine how much further the Bank is prepared to tighten in 2027.

The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.

Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Products and services available depend on your location and the entity holding your account. Before deciding to trade forex, commodity futures, or digital assets, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to FOREX.com or GAIN Capital refer to StoneX Group Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.

Please note that foreign exchange and other leveraged trading involves significant risk of loss. It is not suitable for all investors and you should make sure you understand the risks involved, seeking independent advice if necessary.

FOREX.com is a trading name of GAIN Global Markets Inc. which is authorized and regulated by the Cayman Islands Monetary Authority under the Securities Investment Business Law of the Cayman Islands (as revised) with License number 25033.

FOREX.com may, from time to time, offer payment processing services with respect to card deposits through StoneX Financial Ltd, Moor House First Floor, 120 London Wall, London, EC2Y 5ET.

GAIN Global Markets Inc. has its principal place of business at 30 Independence Blvd, Suite 300 (3rd floor), Warren, NJ 07059, USA., and is a wholly-owned subsidiary of StoneX Group Inc.