Major bank warns inflation will delay interest rate relief

One of Australia’s big four banks has warned Wednesday’s inflation reading will likely come in at the top end of the RBA’s target range all - but killing off the chances of interest rate relief next month.

ANZ economist Sophia Angala forecast Wednesday’s quarterly inflation rate will come in at 0.9 per cent, lifting the overall figure to 2.8 per cent for the year.

“If the data does print in line with our expectation, it does point to the recent momentum of underlying inflation,” she said.

“As a result, we no longer expect a rate cut from the RBA in November.”

Wednesday’s CPI figures are tipped to be make or break for interest rate cuts in November, as unemployment rose to its highest levels in four years, opening the door to interest rate relief.

But if ANZ is correct with its forecast, annual inflation would be near the top of the RBA’s 2 to 3 per cent target.

Ms Angala was quick to point out she does not believe inflation will re-accelerate in the next few months.

“Even though we do expect trimmed mean inflation will lift in Q3, we don’t think it will be a new trend in inflation, with underlying inflation reaching the midpoint of the RBA’s target range by mid 2026,” Ms Angala said.

In a fireside chat, at an Australian Business Economists event in Sydney, RBA governor Michele Bullock confirmed the central bank thinks inflation is “under control”.

“I don’t want to count the chickens too soon, but what we’ve managed to achieve in bringing inflation back down and managing to maintain some of the gains to the labour market, to me, has been a very satisfying outcome,” she said.

While inflation is tipped to rise, the RBA runs a dual mandate of both maintaining the inflation rate as well as keeping Australia at full employment.

It is a rise in unemployment last week that excited markets about the prospects of further rate relief.

But Ms Bullock dismissed September’s surprise jump in unemployment.

“There are still jobs being created, just not as many,” Ms Bullock said on Monday night.

“We’d always thought [unemployment] would drift up a bit. Maybe it’s drifted up a bit further than we thought, but it’s not a huge amount yet.”

The figures released by the Australian Bureau of Statistics show 34,000 Australians lost their job in September, while the number of people who gained work was 15,000.

The falling number of jobs as well as a higher than anticipated participation rate meant Australia’s unemployment rate ballooned to 4.5 per cent.

Unemployment Figures

Despite calling unemployment “a little tight”, Ms Bullock acknowledged the rise in unemployment had caught the central bank off guard.

”We are conscious that we want to try and keep the unemployment rate as low as we can without fuelling inflation, and how close are we to that? We think we’re close-ish, but it’s very uncertain, so we’ve got to be prepared to consider different possibilities,” she said.

”We didn’t go up as high (with interest rates) as other countries, so it might mean we don’t have to come down quite as far as other countries.”

The RBA boss also warned of international uncertainty, despite markets so far ignoring the rising tariff threat.

“People are thinking: ‘Well, you know, could it all end up very badly?’ There’s sort of no answers there,” she said.

”What is it that the markets are so comfortable about? They just think that there’s going to be no bad outcomes here.

”I think some people are worried that might all end in tears.”