Homeowners face further pain as surprise inflation jump complicates rate outlook

Australian inflation has surged to 3.8 per cent, crushing hopes for interest rate cuts and leaving homeowners facing prolonged mortgage pain.

Reserve Bank Governor Michele Bullock and her fellow board members have to balance slowing employment with higher inflation in their December rates decision.

Australian homeowners look to face further pain as inflation rose above market expectations this month, further putting pressure on the Reserve Bank of Australia.

The Australian Bureau of Statistics this morning reported a rise of 3.8 per cent over the year to October, above the 3.6 per cent economists had expected.

Consumers’ pain was largely felt in higher housing and energy costs, with electricity bills pushed up as the effects of state government rebates ending continues to be felt by consumers.

Power pain

Electricity prices saw a particularly high jump, the ABS said.

“Electricity costs rose 37.1 per cent in the 12 months to October 2025. The annual rise in electricity costs is primarily related to State Government rebates being used up by households, as well as the timing of the rollout of the Commonwealth Energy Bill Relief Fund (EBRF) rebates.”

The increase follows a 3.6 per cent rise in September which dashed chances of a Melbourne Cup Day rate earlier this month.

Core inflation, measured by the trimmed mean CPI which removes volatile items, also increased to 3.3 per cent from 3.2 per cent the previous month.

The stronger than expected result will complicate the outlook for interest rate cuts. Markets had hoped that easing inflation might allow the Reserve Bank of Australia to reduce rates, but the data suggest price pressures remain.

Households are likely to feel the impact, with rising rent, housing and electricity costs continuing to strain household budgets, particularly for renters or families with high energy bills.

RBA in a bind

Deloitte Access Economics partner, Stephen Smith, said the RBA finds itself in a difficult situation.

“Today’s inflation data, the first instalment of the Australian Bureau of Statistics’ full monthly Consumer Price Index series, confirms that a rate cut is off the table for the next few months.

Inflation pressures in the economy have accelerated in the recent past. The data released today shows that on an annualised basis trimmed mean inflation was running at more than 4 per cent in October and at more than 3.5 per cent annualised over the past three months.

Monthly headline inflation surprised on the upside, despite electricity prices falling 10.2 per cent in October alone.

This result follows September quarter inflation figures that came in higher than expected, while the unemployment rate remains low. Throw this inflation print on the pile and it is clear that the RBA cannot justify cutting rates right now.

Further complicating the picture for the RBA is that September quarter growth data due next week will almost certainly be soft, reflecting an economy that needs more support.

The RBA now finds itself in the unenviable position of being caught between needing to support economic growth while getting inflation back within the 2-3 per cent band. That tricky balancing act is a central banker’s nightmare.”

Employment slowing

Earlier this week a Deloitte Access Economics’ report showed private employers are now hiring more than the public sector, while white-collar workforce growth slowed to just 0.8 per cent in 2024-25 however overall employment growth was slowing.

Despite 42,200 jobs added in October, total employment growth over the past six months was just 81,500, down from 151,300 in the previous half-year. Deloitte warned the slowdown poses a challenge for the Reserve Bank, which must balance full employment with keeping inflation within its 2-3 per cent target range.

Tough outlook

This month’s figure is the first monthly CPI figure since the ABS moved away from the previous quarterly system, which economists flagged is going to cause more ‘noisy’, or variable statistics which were evened out over three month periods.

With the new monthly CPI now in place, the ABS data will be watched closely by both the RBA and financial markets. If inflation remains elevated, any plans for rate cuts will be delayed and policy makers will continue to face pressure from stressed households.

Originally published as Homeowners face further pain as surprise inflation jump complicates rate outlook