Inflation rose 3.8% over the year to October, outpacing expectations

Headline inflation rose 3.8 per cent over the year to October, outpacing consensus forecasts of 3.6 per cent, data from the Australian Bureau of Statistics (ABS) showed.

This marked the first release of the bureau's new comprehensive monthly CPI indicator, to be phased in as Australia’s primary measure of headline inflation, replacing the quarterly indicator.

CPI remained flat (0.0 per cent) in October, exceeding consensus forecasts of a 0.2 per cent decline. Trimmed mean inflation was 3.3 per cent over the 12 months to October, up from 3.2 per cent in September and above forecasts of 3.0 per cent.

AMP economists Diana Mousina and My Bui said that both headline and underlying inflation were above the RBA’s targets, but noted that the new monthly CPI indicator looked different to the old indicator due to different approaches to seasonal adjustment.

“Clearly both measures of inflation are at the top end or above the Reserve Bank’s 2-3 per cent inflation target and way above the 2.5 per cent target the RBA is now focussing on,” the economists noted in a recent insight.

“However, this CPI release is different because it is a full monthly consumer price index, which means there are complications with how we interpret the data compared to its history.”

The economists noted that this initial volatility could pose some challenges for the RBA in interpreting economic conditions.

“Differences in measurement of categories and new seasonal factors mean the monthly CPI is going to be volatile for some time,” the economists said.

“Much like it surprised higher in October, it could surprise lower next month. This does create more difficulty for the RBA, as the old measure of inflation effectively no longer exists.”

In October, the largest contributors to annual inflation were housing (+5.9 per cent), food and non-alcoholic beverages (+3.2 per cent) and recreation and culture (+3.2 per cent).

Growth in electricity costs, which rose 37.1 per cent over the 12 months to October 2025, was a large contributor to housing inflation. The ABS noted this growth was primarily related to the roll-off of state government energy rebates, which had previously suppressed costs.

The uptick in non-alcoholic beverage prices such as coffee, tea and cocoa (+16.4 per cent) was due to a lower supply of coffee beans from major overseas suppliers, the ABS said. The bureau added that the price growth in recreation and culture had likely been driven by the October school holidays, alongside major sporting events.

At the start of November, the RBA opted to hold the cash rate steady at 3.6 per cent off the back of hotter-than-expected inflation in the September quarter. Economists noted that the RBA likely only had one or two cuts left in this rate-cutting cycle before policy settings were back to ‘neutral.’

“Looking ahead, there is only room for one or two cuts before the policy setting returns to neutral,” BDO’s Anders Magnusson said off the back of the RBA’s November hold decision.

“The RBA is likely to hold onto these until the economy shows it really needs them, which is unlikely to be this year.”

Mousina and Bui expected inflation to slow down in coming months, and predicted that the RBA would deliver another rate cut in May 2026.

“We expect inflation to slow from here. The signal from the various forward-looking price indicators in business indicators (like the PMIs) and NAB business survey are a little softer,” the economists wrote.

“An elevated (and increasing) unemployment rate will put downward pressure on wages growth and should help to ease services inflation. We expect trimmed mean inflation to be around 2.5% by the second half of 2026.”