Introduction to Key Events
The week ahead is filled with important events that can impact the economy. One of the key events is the release of the Q3 Consumer Price Index (CPI) in Australia.
What is CPI and Why is it Important?
The CPI is a measure of inflation, which is the rate at which prices for goods and services are rising. The Reserve Bank of Australia (RBA) uses the CPI to determine monetary policy, including interest rates. The RBA’s preferred measure of inflation is the trimmed mean, which rose by 0.6% quarter-on-quarter (QoQ) in the June 2025 quarter.
Recent Inflation Trends
In the June 2025 quarter, headline inflation rose by 0.7% over the quarter, resulting in an annual rate of 2.1%. This was the lowest annual inflation rate since March 2021. However, the market has since received two firmer monthly CPI reports, with the most recent one showing headline inflation rising by 3.0% year-over-year (YoY) in August.
Impact on the RBA’s Decision
The RBA is now in a difficult position, missing its dual mandate of low unemployment and low inflation. The unemployment rate is expected to finish the year above the RBA’s forecast of 4.3%, and trimmed mean inflation is above the forecast of 2.6%. Despite this, it is expected that the RBA should cut rates by 25 basis points (bp) in November to follow the path of least regret, given the sharp slowdown in the Australian labour market.
Expected Outcome of the Q3 CPI Report
The preliminary estimate for the Q3 CPI report is for headline inflation to rise 1.1% QoQ, and for the annual rate to rise to 2.9%. The trimmed mean is expected to increase by 0.8% QoQ, which would see the annual rate remain at 2.7%. This is likely to provide the green light for the RBA to cut rates at its meeting in November.
Market Expectations
Ahead of the CPI release, the Australian interest rate market is pricing in 17 bp (65% chance) of a 25 bp rate cut for the RBA meeting in November and a cumulative 44 bp of RBA cuts between now and June 2026.
Conclusion
In conclusion, the Q3 CPI report is a key event that can impact the RBA’s decision on interest rates. With the Australian labour market slowing down and inflation above the RBA’s forecast, it is expected that the RBA will cut rates in November. The market is already pricing in a rate cut, and the Q3 CPI report is likely to provide the necessary evidence for the RBA to make a decision.
