Remember when we all thought inflation was finally cooling off and Christmas might bring the gift of lower interest rates? Yeah, about that.
The latest numbers just dropped and they hit harder than a Sydney summer heatwave. Consumer prices in Australia climbed 3.8% over the year to October, up from 2.8% only a few months ago and well above the 3.6% most economists had pencilled in. For the first time we’re getting a full monthly CPI reading, and it’s flashing warning lights across the economy.
To be honest, I wasn’t shocked. Anyone who’s tried to rent a place or pay a mortgage lately could feel the squeeze tightening again. But seeing it confirmed in black and white still stings.
Why October’s Number Matters More Than Usual
Let’s start with the big shift happening right now: Australia has officially moved from quarterly CPI updates to monthly ones. That might sound bureaucratic, but it actually changes everything. The Reserve Bank now has fresher data to work with, which means fewer surprises and, theoretically, better decisions. In practice? It just made the October jump impossible to ignore.
Think of it like getting your bank statement weekly instead of every three months. You spot problems earlier – and in this case, the problem is that inflation is re-accelerating exactly when many were betting on rate cuts.
Housing: The Elephant That Refuses to Leave the Room
If you’ve been following Australian economics for more than five minutes, you won’t be surprised to learn that housing costs were once again the biggest driver. The official housing category rose a brutal 5.9% over the year. Rents, new dwelling costs, utilities – everything that makes keeping a roof over your head expensive went up, and up fast.
Here’s a quick breakdown of the heavy hitters:
- New dwelling purchase costs: still elevated because of construction bottlenecks
- Rents: population growth + chronic undersupply = pain
- Electricity: rebates rolling off + wholesale prices creeping higher
- Gas and other household fuels: same story
In short, everything tied to the place you sleep at night got more expensive, and it accounted for the lion’s share of the inflationary pulse.
The Monthly Picture Was Actually… Flat?
One small mercy: month-on-month, prices didn’t budge in October. That’s better than the rises we saw earlier in the year. But before you crack open the champagne, remember the annual number is what the RBA watches most closely, and that one is heading in the wrong direction.
“Underlying inflation remains too high, and the board continues to judge that there is still a material risk that inflation does not return to target in a reasonable timeframe.”
– Pretty much every RBA statement for the past year, basically
What the RBA Is Likely Thinking Right Now
Put yourself in the shoes of the Reserve Bank board. You cut rates once in February, then spent months saying you were “data dependent” and watching for signs that inflation was truly beaten. You finally started seeing some softness in the labour market and consumer spending. House prices looked like they were stabilising.
Then October CPI lands on your desk showing inflation picking up speed again. Awkward.
The cash rate stays at 4.35% for now – almost no analyst is calling for a move at the December meeting anymore. In fact, the conversation has flipped from “when will they cut next” to “could they actually hike again?”
I don’t think a hike is the base case – the labour market would need to stay red-hot for that – but it’s no longer off the table completely. That alone tells you how much this print shifted the mood.
The Weird Disconnect Between Business and Household Sentiment
Here’s something fascinating that often gets missed in the headlines. While households are still grumpy – confidence remains below average – businesses are actually feeling pretty good. The National Australia Bank monthly survey showed business conditions at their highest level since early 2024. Sales, profitability, and forward orders all improved.
Translation: companies are doing okay, but everyday Australians still feel broke. That’s a tricky environment for the RBA. Cut rates too aggressively and you risk fuelling another round of house price growth. Stay on hold too long and you keep squeezing households that are already maxed out.
What This Means for Your Wallet
Let’s get practical. If you’re on a variable mortgage, don’t hold your breath for relief before February at the earliest – and even that’s looking optimistic now. Fixed-rate borrowers rolling off ultra-low pandemic deals are still copping massive repayment shocks.
Renters? Brace yourselves. The rental vacancy rate nationally is still under 1% in many cities. With population growth showing no signs of slowing and construction lagging years behind, rents are almost certainly going higher before they get better.
Grocery prices have actually moderated quite a bit (thank you, competitive supermarket sector), but discretionary spending – travel, dining out, big-ticket items – remains under pressure because so much of the household budget is swallowed by housing.
Longer-Term Outlook: Are We Stuck in a Higher-for-Longer World?
In my view – and I’ve been watching these cycles for a while – the era of ultra-low interest rates is dead for this cycle. Even when the RBA does eventually cut, we’re probably looking at a “higher neutral” rate environment than we became used to post-GFC.
Why? A few structural reasons:
- Chronic housing undersupply isn’t getting fixed overnight
- Energy transition costs are feeding through to utilities
- Geopolitical fragmentation is keeping goods inflation risks alive
- Strong migration is supporting demand even as per-capita growth weakens
Add it all up and the RBA’s 2-3% inflation target feels more like a destination we visit occasionally rather than live in permanently.
Investment Implications Most People Are Missing
Markets hate uncertainty, and right now there’s plenty. Australian banks have been darling dividend stocks for years, but if rates stay high longer, loan arrears could tick up and capital requirements might tighten.
On the flip side, anything exposed to the construction pipeline – building material companies, engineering firms, even some REITs with development exposure – could see delayed tailwinds if high rates choke off new projects.
And then there’s the Aussie dollar. Every time rate-cut hopes get crushed, the AUD gets a little boost. We’re back flirting with US73c as I write this. Not life-changing, but nice if you’re heading overseas for holidays.
Final Thoughts: Patience Is the Name of the Game
Look, no one likes higher-for-longer. It’s painful for borrowers, frustrating for first-home buyers, and annoying for anyone who just wants economic certainty. But pretending inflation is beaten when the data says otherwise would be far worse in the long run.
The RBA learned that lesson the hard way in 2021-22. They’re not going to repeat it.
So buckle up. Keep an emergency fund, lock in fixed rates if you’re worried about the unknown, and remember that economic cycles always turn – eventually. October’s CPI was a speed bump, a big one, but not the end of the road.
Stay informed, stay calm, and keep watching the data. Because right now, the data is watching us back.
