Australia’s latest inflation figures have dampened hopes of a near-term rate cut, raising concern across the housing, construction, and banking sectors as policymakers weigh how best to support households under pressure.
Data from the Australian Bureau of Statistics revealed the annual Consumer Price Index (CPI) rose 3.2 per cent in the year to September, up from 1.1 per cent in the June quarter.
The rise reflects increases in electricity, new dwelling costs, and housing-related expenses, prompting economists to warn that the Reserve Bank of Australia (RBA) is unlikely to move on rates in the short term.
REIA: ‘Stability in economic settings is essential’
Real Estate Institute of Australia (REIA) President Leanne Pilkington said the results painted a stark picture compared to the June quarter’s encouraging figures, effectively dashing hopes of a rate cut this year.
“The annual trimmed mean inflation is now at the top of the RBA’s target range and may result in the RBA holding its rates steady at its meeting next week,” Ms Pilkington said.
She noted that rental prices increased by 3.8 per cent over the 12 months to the September quarter, down from 4.5 per cent in June, reflecting “stable vacancy rates and slowing growth in advertised rents across most capital cities.”
“However, new dwelling prices rose 0.9 per cent over the 12 months to the September quarter, displaying a slight uptick as home builders have raised base prices,” she said.
Ms Pilkington added that policymakers must proceed carefully.
“We’re in a phase where the RBA’s next move carries real consequences for both confidence and affordability,” she said.
“Stability in economic settings is essential to support investment, construction, and a sustainable housing supply.”
While a rate hold is widely expected, she said the RBA must weigh the “acute financial distress of Australian families.”
“The hopes of a Melbourne Cup Day rate cut have been slashed as this is the highest annual inflation rate since the June 2024 quarter when annual inflation was 3.8 per cent,” Ms Pilkington said.
Bendigo Bank: Rate cuts now ‘at best around a 1 in 12 chance’
Bendigo Bank Chief Economist David Robertson said the unexpected jump in inflation had made a Cup Day rate cut highly improbable.
“The unexpected jump in core inflation to 3% – from 2.7% – makes it very difficult for the RBA to cut rates any further this year – despite the recent uptick in unemployment,” Mr Robertson said.
“A Cup Day cut is now at best around a 1 in 12 chance, having been an odds-on favourite a few days ago.”
He added that while the official cash rate remains at 3.6 per cent, there could still be scope for cuts next year if labour market conditions continue to ease.
“This will leave the official cash rate at 3.6% still clearly above a ‘neutral rate’, so another cut early to mid-next year is still likely, especially if labour markets continue to ease,” he said.
“Our revised forecasts still have one more RBA cut, but now not until February 2026,” he said.
Mr Robertson said the rise in inflation was driven by electricity prices, new dwelling costs and market services, although “underlying inflation may still ease back below 3% in the next few month’s data.”
Master Builders: ‘Housing-related inflation must be brought under control’
In a separate statement, Master Builders Australia Chief Economist Shane Garrett said the inflation figures were “deeply concerning” for the building and construction industry.
“The fact that rents and new home costs are again moving in the wrong direction is a big worry. The cost of a new dwelling is now 1.5 per cent higher than 12 months ago, the fastest pace of increase since February,” Mr Garrett said.
“Rental prices rose 3.8 per cent annually, down from 4.5 per cent in June, but the latest figures show rental inflation accelerated in September for the first time in 11 months.”
He noted a significant 60,000-home building deficit in 2024–25, underscoring the supply shortfall driving affordability pressures.
“When we don’t build enough new homes, affordability deteriorates for both renters and owner-occupiers,” Mr Garrett said.
Master Builders Australia CEO Denita Wawn said policies to lift housing supply were essential.
“We’re in a housing crisis. Demand is strong, but people are holding off building because of high costs and interest rate uncertainty,” Ms Wawn said.
“A period of declining interest rates is needed to lift home building and keep the economy growing, but today’s figures pour cold water on hopes of a rate cut next week.”
She said structural reform was vital to support the construction sector.
“Boosting housing supply is the only way to bring stability back to the market. That means moderating building costs, cutting red tape, and getting more projects off the ground,” Ms Wawn said.
“We need to fast-track reforms that simplify regulation, lift productivity, and get the economy moving. We also need to boost labour supply so builders can get on with building.”
