Inflation shock sees market waver on further RBA rate cuts

Bond traders, who essentially bet on future rate movements, pivoted on Wednesday after the August inflation release, suggesting the chance of another 2025 rate cut may have passed. 

That may be bad news for home loan holders hoping further easing will add to the three cuts already delivered this year.

Inflation rose to its highest level in more than 12 months in August, with consumer prices rising 3% on an annual basis – up from 2.8% in July and higher than consensus expectations of 2.9%.

The cash rate is the RBA’s primary tool to keep inflation within its 2% to 3% target band, with higher rates designed to slow price growth and lower rates to stimulate it.

The RBA board meets again on Monday, with the decision due Tuesday afternoon widely expected to be a hold.

Meeting date	Decision	Cash rate
17–18 Feb	-0.25%	4.10%
31 Mar–1 Apr	Hold	4.10%
19–20 May	-0.25%	3.85%
7–8 July	Hold	3.85%
11–12 Aug	-0.25%	3.60%
29–30 Sep	TBD	???
3–4 Nov	TBD	???
8–9 Dec	TBD	???
2–3 Feb	TBD	???
16–17 Mar	TBD	???
4–5 May	TBD	???

Market pares back bets on November rate cut

Until recently however, economists and the market thought November's meeting would be the first chance for another cut.

Now, bond traders are pricing in less than 10 basis points of easing by November – roughly half what they expected a day earlier, according to ANZ analysis.

That shift means borrowers may expect to face at least two consecutive holds, with a full 25-point cut not fully on the cards until February 2026.

It's likely the RBA board's post-meeting statement and governor Michele Bullock's commentary at the accompanying press conference on Tuesday could provide more – or less – clarity.

Inflation pressures led by housing and essentials

August's inflationary uptick was driven by the rising cost of housing (+4.5%) which encompasses electricity costs, food and non-alcoholic beverages (+3%), and alcohol and tobacco (+6%).

"The annual rise in electricity costs is primarily related to households in Queensland, Western Australia and Tasmania having higher out-of-pocket costs in August 2025 than they did in August 2024," Australian Bureau of Statistics head of prices statistics Michelle Marquardt said.

"In August last year, state government electricity rebates were in place for Queensland ($1000), Western Australia ($400), and Tasmania ($250).

"Over the year, those rebates have been used up and those programs have finished."

Removing the impacts of electricity rebates rolling off from the calculations, electricity prices rose just under 6% over the year to August.

While the RBA has recently been clear that it doesn't put much weight on the monthly inflation read, experts are concerned about what the latest findings mean for the upcoming, more comprehensive quarterly read.

Big four banks split on rate outlook

NAB scrapped its previous rate cut forecast on the release of the August figures, instead suggesting borrowers might have to wait as long as May 2026 to realise future rate savings.

It expects the quarterly inflation read to come in 0.3% higher than current RBA forecasts.

CommBank, meanwhile, noted the latest inflation read presents notable risk to its November rate cut forecast.

CommBank head of Australian economics Belinda Allen said Ms Bullock "may have spoken too soon" on Monday, when the central bank head told the House of Representatives Standing Committee on Economics that she believes the RBA is "in a very good position in terms of inflation".

"There is little doubt the monthly data will give the RBA cause to think twice about upcoming monetary policy decisions," Ms Allen said.

"But the quarterly data will remain the arbiter of how the RBA views the risk of inflation reaccelerating."

Westpac is now the only big four bank tipping more than one more cash rate cut this cycle, forecasting one in November and another in early 2026.

Like CommBank, ANZ warned of upside risks on the back of the August inflation data, but hasn't gone so far as to hit the brakes on its November forecast.

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_{Image courtesy of the Reserve Bank of Australia}