Inflation Risks Major Concern, Target Return Delay Could Drive Rates Higher

The minutes from the October RBA meeting showed that the Board had discussed both leaving rates unchanged and a 25bp hike but it felt that there hadn’t been “sufficient new information” to warrant tightening policy further. But November is clearly live as there will be updated forecasts and more data and it “acknowledged that upside risks” to inflation were a “significant concern”. Q3 CPI data out on October 25 and the RBA CPI forecast in Q2 2025, which currently stands at 3.1%, will be key to the meeting outcome.

• The RBA left rates unchanged because there had already been material tightening which was yet to be fully felt, inflation has moderated, consumption is “weak” with real disposable income still falling, the labour market “had reached a turning point” and because of risks to growth from China.
• The tightening discussion was centred on inflation risks with services remaining a concern, but also the impact of higher petrol prices on expectations and the easing in financial conditions from higher house prices and lower AUD.
• If these risks result in an upward revision to the RBA’s Q2 2025 CPI forecast, which is already above target at 3.1%, then there is a significant chance of another hike as the Board strengthened its language to remind us that it has a “low tolerance” to a delay in the return to target in a “reasonable timeframe”.
• The minutes pointed to the revised staff forecasts and new inflation, employment and activity data available at the November meeting.
• See RBA minutes here.