The Smell of Burnt Forecasts
The street was wrong. At 11:30 AM AEDT today, the Australian Bureau of Statistics (ABS) dropped a data bomb that effectively incinerated the consensus for a Christmas rate cut. The dream of a 3.35 percent cash rate by December is dead, buried under a pile of rising electricity bills and a stubborn services sector. For months, the narrative focused on a cooling economy, but today’s September Quarter 2025 CPI release reveals a disturbing resurgence in price pressures. The headline inflation rate did not just tick up; it leaped from 2.1 percent in June to 3.2 percent today. Money is moving, but it is moving in the wrong direction for the Reserve Bank of Australia (RBA).
The Electricity Trap
Why did the numbers turn so toxic? Look at the power lines. Electricity costs surged by a staggering 9.0 percent this quarter. This was not a failure of the grid, but a failure of the safety net. The Commonwealth Energy Bill Relief Fund, which kept headline numbers artificially low earlier this year, has begun to expire in key states like New South Wales and the ACT. When the rebates vanished, the true cost of living was exposed. This is the risk vs reward trade-off that policy makers ignored: temporary subsidies create temporary relief, but the eventual snap-back is brutal for inflation modeling. While the RBA hoped to see a steady glide path back to the 2 to 3 percent target range, they instead found a bounce that complicates every meeting through the end of the year.
Bullock is Cornered
RBA Governor Michelle Bullock has repeatedly warned that the path to low inflation would be “bumpy,” and today she was proven prophetic. The most alarming metric for the central bank is the Trimmed Mean. This measure strips away the 15 percent most volatile price changes (like the electricity spikes) to find the “true” underlying pulse of the economy. It rose to 3.0 percent, marking the first increase in underlying inflation since December 2022. As Bloomberg reported shortly after the release, the odds of a November rate cut collapsed from 40 percent to a mere 11 percent in the space of an hour. The market is now pricing in a “higher for longer” reality that few expected when the ASX 200 was hitting record highs of 9,115.2 points earlier this month.
The Market Fallout: Winners and Losers
The immediate reaction on the trading floor was a flight to safety. The Australian Dollar (AUD) strengthened to 0.6540 against the Greenback as traders realized the RBA could not follow the US Federal Reserve’s path of aggressive easing. For investors, the alpha has shifted. Financial stocks, which had been pricing in a margin-squeezing rate cut, found sudden support. Conversely, consumer discretionary stocks like Eagers Automotive and retailers felt the chill. If mortgage relief is not coming in 2025, the summer spending spree is likely to be a whimper rather than a bang. The table below outlines the regime shift we have witnessed over the last four quarters.
| Quarter | Headline CPI (%) | Trimmed Mean (%) | RBA Cash Rate (%) |
|---|---|---|---|
| Dec 2024 | 3.8 | 4.2 | 4.35 |
| Mar 2025 | 3.2 | 3.8 | 4.10 |
| Jun 2025 | 2.1 | 2.7 | 3.85 |
| Sep 2025 (Today) | 3.2 | 3.0 | 3.60 |
The Death of the Christmas Cut
There is no sugar-coating this: the RBA board will meet on Melbourne Cup day (November 4) with their hands tied. To cut rates now would be to risk a full-scale inflation breakout that could take years to reel back in. Household inflation expectations have already edged higher to 4.8 percent in October, their highest level since June. The psychological battle is being lost. When consumers expect prices to rise, they demand higher wages, and when businesses pay higher wages, they raise prices. This feedback loop is exactly what Bullock is trying to avoid. The reward for patience is a stable economy in 2026; the risk of premature easing is a return to the 7 percent nightmares of 2022.
The focus now shifts to a major structural change in how we track the Australian economy. On November 26, 2025, the ABS will release the first “complete monthly CPI” report. This will replace the quarterly indicators and provide a more granular, frequent look at price volatility. Watch the 3.0 percent Trimmed Mean figure closely. If that number does not begin to retreat in the November monthly data, any hope of a rate cut will be pushed deep into the second quarter of 2026. The next critical milestone is the February 3, 2026 RBA Board meeting. Until then, the cash rate is staying at 3.60 percent, and the 3.2 percent headline inflation rate remains the number to beat.
