Australian Core Inflation Forecast Nears 1%, Bolstering Rate-Hike Bets
Key Facts
Markets are awaiting Australia’s third-quarter consumer price data after the four major banks’ forecasts for quarterly trimmed mean inflation ranged between 0.9% and 1.0%, above the Reserve Bank of Australia’s forecast of 0.8%, according to an InvestingLive report. The figures will directly test the bank’s assessment of the price trajectory as it prepares for its November monetary policy meeting. Deputy Governor Andrew Hauser indicated that the reading could exceed the bank’s previous assumptions. He said the quarterly figure “will be higher than we assumed in the August statement,” unless there is a large downside surprise in the final month of the quarter. The official data are due on Wednesday, 28 October, at 11:30 a.m. AEDT.
Westpac forecasts the headline consumer price index to rise 1.3% quarter on quarter and 4.1% year on year in the third quarter, while it expects the trimmed mean to increase 0.9% quarter on quarter and 3.5% year on year. That puts its estimate for underlying inflation at the lower end of the major banks’ forecast range, but still above the Reserve Bank’s assumption of 0.8% for the quarter. The divergence between headline inflation and the trimmed mean comes as the bank monitors sources of price pressure, including fuel and services. In the latest available reading before the September data, annual inflation rose to 4.0% in August from 3.5% in July. Annual trimmed mean inflation remained at 3.6% in August, unchanged from July.
Hauser said oil prices are now about one-third higher than the bank had assumed in its August forecasts. He added that the fastest-rising components of the price index are directly linked to domestic capacity constraints, including market services, while demand for data centres is adding economic pressure. The deputy governor described the current inflation outlook as “materially worse” than the bank’s previous forecasts, pointing to risks related to the Middle East, demand for artificial intelligence and domestic energy constraints. The bank had warned that disruptions to global oil supplies were pushing up energy prices and inflation. It also said some of the increase in fuel prices had already passed through to prices for other goods and services, broadening the impact of the energy shock beyond petrol stations.
The Reserve Bank raised the cash rate by 25 basis points to 4.60% on 29 September, with the new level taking effect from 30 September. The bank linked its decision to inflation risks stemming from oil supply disruptions, fuel prices and pressure on energy. In its forecasts published in August, it expected trimmed mean inflation to remain above 3% until mid-2027, before falling to 2.5% by early 2028. It also expected the end of the fuel tax cut in July and August to lift consumer fuel prices and quarterly headline inflation in the September quarter. That makes the quarterly data a test of the bank’s assessment of whether pressure will persist beyond the effect of fuel, alongside what Hauser described as domestic capacity pressures.
Westpac said markets had repriced the chance of a November rate hike after Hauser’s comments, with the probability moving from 20% at the end of the previous week to roughly an even chance of a hike or a hold when its report was published on 23 October. Westpac sees the bank as likely to raise rates by 25 basis points at its November meeting if the inflation data are broadly in line with its forecasts. Hauser’s comments had underscored the importance of the quarterly reading, after he said it was likely to exceed August assumptions unless there was a large downside surprise in the final month. This trajectory means the September data will arrive ahead of the upcoming meeting, giving the bank a fresh reading on headline and underlying inflation. The Australian Bureau of Statistics will release the September consumer price index on 28 October, ahead of the November meeting underpinning Westpac’s forecast.
The upcoming release comes amid a statistical transition that began after the Australian Bureau of Statistics discontinued the monthly consumer price index following its September 2025 release. The bureau said the final release of that index was published on 29 October 2025, and that the complete monthly consumer price index became the primary measure of headline inflation. The 28 October release includes September monthly data and quarterly data for the third quarter. The next reading will therefore combine monthly price tracking with an assessment of average inflation over the quarter, the comparison against which the new forecasts will be measured by the central bank and banks. The result will be pivotal in assessing whether price pressures are moving in line with Westpac’s expectations for the November decision.