Australia's Q3 inflation accelerates, crushing rate-cut hopes

By Stella Qiu SYDNEY (Reuters) -Australian consumer prices jumped by the most in 2-1/2 years in the September quarter as electricity and travel costs climbed, while a shockingly large increase in the core inflation reading seemed to rule out any imminent rate cuts. Investors gave up any remaining hopes for a rate cut from the Reserve Bank of Australia next week, which is now just 8% priced in, down from 40% before the data. The chance of a cut in December is now seen as less than 25%. Rates are seen bottoming at 3.35% by mid-2026 from the current 3.6%, implying just one last cut in the easing cycle. Economists at the Commonwealth Bank of Australia abandoned their call for one more rate cut in February after the hot inflation figures and now expect the cash rate to remain on hold for a prolonged period. "It would take a material upside move in the unemployment rate and more moderate inflation prints to bring the RBA back to the easing table," said Belinda Allen, head of Australian economics at CBA. "Instead, the RBA will now turn more hawkish and look to prevent a return to higher inflation." Data from the Australian Bureau of Statistics on Wednesday showed the consumer price index (CPI) rose 1.3% in the third quarter, topping forecasts of a 1.1% increase. The annual CPI inflation rate jumped to 3.2%, from 2.1%, above the top end of the RBA's 2% to 3% target band. Crucially, the key trimmed mean measure of core inflation accelerated by 1.0% in the quarter, well above forecasts of a 0.8% gain and unwelcome news for the RBA, which had looked for something nearer 0.6%. The annual pace rose to 3.0%, from 2.7%, the first increase since a peak of 6.8% in late 2022. The Australian dollar gained 0.2% to 66 cents after the data release, while three-year government bond futures fell 11 ticks to 96.43, the lowest in two weeks. Westpac too joined the other 'big four' banks on Wednesday in calling a rate hold in November after the inflation data. ELECTRICITY, HOLIDAY TRAVEL COSTS RISE Rate-cut hopes have faded since RBA Governor Michele Bullock said on Monday that even a 0.9% rise in the core measure would be a "material miss" to the central bank's forecasts, while labelling an unexpected surge in the jobless rate to 4.5% a statistical quirk. Adam Boyton, head of Australian economics at ANZ, said if the economy proves to be materially weaker than anticipated, the RBA does have the option to ease in December, but the hurdle for any easing this year is now very high. "We expect the more likely path for policy will be a final 25 bps easing in the first half of 2026, albeit now with the risk that our expectation of a final rate cut in February ends up occurring later or not at all." Details of the inflation report showed the largest price gains in the September quarter came in electricity, which jumped 9% as government energy subsidies ended, and local government charges paid by property owners, which surged 6.3%, the fastest pace since 2014. There was also upward pressure on services costs, with annual services inflation picking up to 3.5% in the quarter. Holiday travel and accommodation prices rose 2.5%, thanks to robust demand over school holidays. From next month, the bureau will publish complete monthly inflation data, versus partial data at present. But the RBA has said it will still focus on the quarterly reports as the seasonal adjustments in the new monthly reports will take some time catching up. (Reporting by Stella Qiu and Wayne Cole; Editing by Jamie Freed and Muralikumar Anantharaman)

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