The Reserve Bank may have to consider an emergency interest rate rise at its final meeting of the year and Treasurer Jim Chalmers could look at spending cuts after an unexpected jump in inflation suggests price pressures are growing across the economy.

The new monthly consumer price index, released by the Australian Bureau of Statistics on Wednesday, showed inflation lifting to 3.8 per cent in the 12 months to the end of October. It had been 3.6 per cent to the end of September.

In a major concern for the Reserve Bank, underlying inflation – which excludes volatile and one-off price moves – lifted to 3.3 per cent to sit well above the RBA’s 2-3 per cent inflation target.

Another worry is the breadth of inflation with the prices of more goods and services growing at faster than 3 per cent than those by less than 2 per cent, the first time that has occurred since the middle of last year.

While electricity prices fell by 10 per cent in October, and by almost 19 per cent in Sydney, they have increased by 37.1 per cent over the past 12 months. The end of state-based subsidies is driving the increase with the federal government’s own subsidy due to finish this year.

Housing construction costs are rising, up by 1.7 per cent over the year after a 0.4 per cent lift in October. Rents fell by 0.2 per cent in the month but over the past 12 months they have increased by 4.2 per cent.

Inflation pressures are mounting in unusual areas. The prices for clothing accessories have jumped by 12.4 per cent over the year as the surge in gold and silver prices is now being passed on by jewellers to their customers.

And prices for beef and lamb have lifted by more than 10 per cent with the ABSattributing this in part to strong overseas demand for Australian red meat. Exports of beef to the United States have surged to record highs over the past year.

EY chief economist Cherelle Murphy said there was no chance the Reserve Bank will cut interest rates at its last meeting of the year on December 8-9.

“A rate hike may even be considered given the next board meeting is not until February,” she said.

“If the re-acceleration in inflation is sustained over coming months – recognising that the monthly number may be exhibiting some volatility – interest rate hikes are more likely than cuts in 2026.”

Deloitte Access Economics partner Stephen Smith said the Reserve Bank was now in an “unenviable position” of trying to support the economy and bring inflation down.

“That tricky balancing act is a central banker’s nightmare,” he said.

Chalmers acknowledged the annual number was higher than he wanted but that it was partly driven by temporary factors such as the ending of state energy rebates.

While Chalmers said electricity rebates – including Commonwealth energy bill relief that winds up at the end of the year – were an important way to help Australians with cost-of-living pressures, he dampened expectations that they will be extended into 2026.

Pressed on the mid-year budget update, which will be released early next month, Chalmers said it would not be a “mini budget” but conceded there would be some spending cuts.

“There will be some savings in the mid-year budget update. But the main game is May,” he said.

After a $10 billion deficit last financial year, the 2025-26 budget was forecast in March to show a deficit of $42.1 billion.

Shadow treasurer Ted O’Brien described the 3.8 per cent rate as extraordinary, saying it would hit the nation’s army of mortgage holders.

“With just 29 days until Christmas, this is the worst possible news for struggling mortgage holders who can now kiss goodbye to any rate cut - any rate cut at all,” he said.

The Reserve Bank has warned the pace at which the economy can grow without adding to inflation pressures has fallen due to a sharp slowdown in productivity. It was a key discussion point at the August three-day economic roundtable that was chaired by the treasurer.

Chalmers said he would meet state and territory treasurers on Friday to discuss federation reform and the federal government’s national competition policy agenda.

Separate data from the bureau suggests the economy is becoming more dependent on the private sector after years surviving on government spending.

Private residential construction work lifted by 4 per cent in the September quarter while non-residential projects increased by 6.6 per cent.

While overall public sector work fell by 0.7 per cent, largely due to the winding up of some large state-based infrastructure works, public residential work jumped another 17.9 per cent to be 46.1 per cent over the past 12 months.

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