Q3 CPI surprised to the upside, with core CPI back at the upper end of the RBA’s target range. The RBA is expected to keep the cash rate unchanged in Q4, having expected a cut previously. Further RBA rate cuts to hinge on any unexpected and material labour-market deterioration, Standard Chartered's FX and Macro Strategist Nicholas Chia reports.

A high bar for RBA cuts

"Headline CPI rebounded 1.3% q/q and 3.2% y/y in Q3, with the latter at the highest since mid-2024. Trimmed mean CPI also surprised to the upside, rising 1% q/q and 3% y/y, putting it at the upper end of the RBA’s target range; the central bank was pencilling trimmed mean CPI of 0.6% q/q and 2.6% y/y in Q3. Prior to the CPI release, RBA Governor Bullock had labelled a 0.9% increase in trimmed mean CPI as a “material miss”, which we think rules out further RBA rate cuts near-term."

"We now expect the RBA to keep the cash rate unchanged in Q4 after the upside miss in Q3 CPI, having previously expected a rate cut. We therefore raise our terminal rate projection for the RBA to 3.60% (3.35% prior). We think the RBA is likely to put more weight on the price stability aspect of its dual mandate amid growing evidence of stalling disinflation in the Australian economy. At a fireside chat on 27 October, Governor Bullock did not sound too perturbed by the recent uptick in the unemployment rate, citing the RBA’s liaison surveys where half of businesses are reporting difficulties securing labour. She also suggested that firm services inflation may reflect robust wage gains from labour-market tightness."

"Risks to our view include the RBA still opting to cut rates on an unforeseen and material deterioration in the labour market amid growth headwinds from trade or tight financial conditions. But we think the earliest a rate cut may happen is in 2026 with the US’ trade truce. We think the upside miss in Q3 core CPI increases the salience of sticky prices to the RBA, raising the hurdle for monetary accommodation in the foreseeable future."