Unexpected inflation spike dashes hopes of rate cut as new hikes loom

A shocking 37.1 per cent electricity price surge has driven inflation to 3.8 per cent, with Brisbane households hit hardest at 5.2 per cent.

Mortgage holders face the prospect of rate hikes as soon as next year as inflation surged beyond expectations, driven by a spike in electricity and housing costs.

Data released on Wednesday showed inflation rose 3.8 per cent nationally over the 12 months to October – driven by a 37.1 per cent spike in electricity prices – heaping more pressure on federal Treasurer Jim Chalmers for more energy rebates.

Brisbane households were dealt a harsher blow, with inflation rising 5.2 per cent over that period.

Housing costs in Brisbane rose 12.4 per cent, almost triple the 4.2 per cent recorded in Sydney and Melbourne.

The figures dashed any last hopes of a pre-Christmas rate cut at next week’s Reserve Bank meeting, with economists now predicting a rate hike is more likely in 2026 than cuts.

EY Oceania chief economist Cherelle Murphy said a rate hike could even be considered as early as next week’s RBA board meeting given the next one won’t be until February.

“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,” she said.

Swiss bank UBS tipped a rate rise starting most likely in the fourth quarter of 2026, with a cumulative 50-basis-point increase by the end of 2027.

“We think a relatively cautious approach initially seems more likely, rather than a sudden lift in rates,” it said.

Deloitte Access Economics partner Stephen Smith said the inflation figures did put the RBA in a tricky position.

“The RBA now find 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,” he said.

Federal Treasurer Jim Chalmers on Wednesday. Picture: Martin Ollman/NCA NewsWire

The spike in electricity prices was “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 rebates”, the Australian Bureau of Statistics said.

The figures have also poured further pressure on Treasurer Jim Chalmers to extend the $75-per-quarter energy bill rebates, due to expire at the end of December.

He said a decision depended on updated GDP figures, set to be released on December 3.

“We’ll make that decision closer to the release of the mid-year update,” he said.

“You can anticipate that that mid year economic update will be after the national accounts so that we can plug in the new data we get in the first week of December from the September quarter to make sure that our forecasts are relying on the most recent comprehensive information.”

Shadow treasurer Ted O’Brien wouldn’t say whether the Coalition would support an extension, saying they would “weigh it up” if the government put it on the table.

In Queensland, shadow treasurer Shannon Fentiman said the Premier needed to use his own mid-year budget to provide cost-of-living relief.

“Queenslanders are struggling and these inflation figures show why the Mid Year Budget needs to ease the pressure on Queensland households,” she said.

“Premier David Crisafulli promised he would help Queenslanders if the cost of living crisis continued and this inflation data reveals costs are still going up here more than anywhere else.”

Queensland Treasurer David Janetzki would not say if the inflation figures would impact its Mid-Year Economic and Fiscal Review.

“Our first budget is delivering the single largest recurrent investment into cost-of-living support in our state’s history,” he said.

“Our initiatives including the $100 Back to School Boost, 50c fares and $200 Play On! vouchers are fully funded and permanently delivered, something Labor never did.”

Originally published as Unexpected inflation spike dashes hopes of rate cut as new hikes loom