Australia’s October CPI Tops Forecasts, Pushing Back Hopes of RBA Rate Cuts
Australian inflation re-accelerated against expectations in October, a hawkish surprise that is likely to keep the Reserve Bank of Australia on hold for longer and support the Australian dollar while pressuring duration.
Why this matters for traders
The upside surprise in both headline and underlying inflation stiffens the RBA’s resolve to keep policy restrictive. FX markets typically favor AUD on hotter inflation, while front-end yields and rate volatility tend to rise as traders reprice the policy path.
Key Points
- Headline CPI (Oct): 0.0% m/m (vs -0.2% expected), 3.8% y/y (vs 3.6% expected)
- Trimmed mean CPI (core): 0.3% m/m; 3.3% y/y (vs 2.9% expected)
- Inflation remains above the RBA’s 2–3% target band, especially on core measures
- The ABS now treats the Monthly CPI as Australia’s primary inflation gauge, replacing the quarterly series
- Near-term rate cuts look unlikely; risk is for a longer hold and tighter financial conditions
The data at a glance
Australia’s October CPI printed flat on the month at 0.0% m/m, defying consensus for a small decline, while annual inflation rose to 3.8% y/y. The RBA’s preferred underlying measure—the trimmed mean—came in hot at 3.3% y/y and 0.3% m/m, underscoring sticky domestic price pressures.
Policy outlook: RBA’s fight isn’t done
With headline and core inflation both above target, today’s report makes an early pivot less plausible. The central bank is likely to emphasize the need for sustained evidence of disinflation—particularly in services and other non‑tradable categories—before considering easing. Risks skew toward a higher-for-longer stance rather than preemptive cuts.
Market implications
– FX: Hotter inflation is typically AUD-supportive as traders reduce the probability of early easing. AUD crosses could find a bid on rate differential dynamics.
– Rates: Front-end ACGB yields tend to rise on hawkish repricing; swap curves may bear-flatten as cuts are pushed out.
– Equities: A firmer policy path can weigh on rate-sensitive sectors; domestically focused names may see profit-margin scrutiny if input costs remain sticky.
– Volatility: FX and rates vol may pick up as markets recalibrate terminal rate and timing of the first cut.
Structural change: Monthly CPI becomes the main gauge
The Australian Bureau of Statistics has elevated the Monthly CPI to the country’s primary measure of headline inflation, replacing the quarterly release. The new format brings timelier seasonally adjusted and trimmed mean estimates, offering markets earlier visibility into inflation trends and policy risks, BPayNews notes.
What to watch next
– Forward-looking inflation drivers such as rents, utilities, and services costs
– Labor market data and wage growth for signs of second-round effects
– RBA communications and updated forecasts for signals on the policy reaction function
– Global disinflation trends and commodity prices influencing tradables inflation
FAQ
What did Australia’s October CPI show?
Australia’s headline CPI was 0.0% m/m and 3.8% y/y, above expectations. The trimmed mean (core) rose 0.3% m/m and 3.3% y/y, signaling persistent underlying inflation.
How might the RBA respond?
The data reduces the likelihood of near-term rate cuts. The RBA is expected to maintain a restrictive stance until there is clear and sustained progress toward the 2–3% target, especially in core measures.
What does this mean for the Australian dollar?
Hotter inflation typically supports AUD as markets push out easing bets, widening rate differentials in Australia’s favor versus low‑yielding peers. However, broader risk sentiment and global yields will also influence AUD direction.
Is the monthly CPI now the official inflation measure?
Yes. The ABS now treats Monthly CPI as the primary gauge, providing more timely seasonally adjusted and trimmed mean data, and a more detailed monthly breakdown.
Which markets are most sensitive to this print?
AUD/USD and AUD crosses, Australian front-end government bonds and swaps, and domestically oriented equity names that are sensitive to borrowing costs and input prices.
