If you were watching the charts yesterday, you would have seen the S&P/ASX 200 Index (ASX: XJO) take a nosedive commencing at 11:30am AEDT.
Investors were favouring their sell buttons after the Australian Bureau of Statistics (ABS) reported that the Consumer Price Index (CPI) indicator rose 1.3% in the September quarter and 3.2% annually.
The unexpected surge in inflation won't come as good news to ASX 200 investors or mortgage holders pining for an RBA interest rate cut next Tuesday.
Especially with trimmed mean annual inflation – which removes certain volatile items and is the RBA's preferred measure – rising to 3% for the September quarter, up from 2.7% in the June quarter. That was significantly above the RBA's prior forecast of a 2.6% increase.
So, with Australia's inflation genie back out of the bottle, is an interest rate cut now too much to hope for?
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What can ASX 200 investors expect from the RBA's interest rate call?
"Q3 CPI came in hot across the board, reinforcing that price pressures are proving hard to shake," Josh Gilbert, market analyst at eToro, told us.
As for the ASX 200, he noted, "The message for investors is that further rate relief may still be some way off, with near-term rate cuts looking unlikely."
Looking ahead, Gilbert said:
The board will almost certainly stay on hold in November and may even need to keep its foot on the brake for longer, putting rate-sensitive sectors under pressure, but supporting the Aussie dollar.
Michele Bullock and her team have already been clear that they are in no rush, especially with inflation running this hot. Until we get a more compelling story that inflation is trending lower, the board will sit tight, and rates won't be moving lower.
Belinda Allen, head of Australian economics at Commonwealth Bank of Australia (ASX: CBA), also believes the uptick in inflation will stay the RBA's hand.
"This result will be a genuine concern for the RBA. We expect the central bank to take a more hawkish tone to avoid a return to higher inflation," she said.
CBA expects the RBA to hold the official interest rate steady at 3.60% next Tuesday. And CBA no longer expects that ASX 200 investors will see the RBA cut rates in February 2026.
Goldman Sachs economist Andrew Boak, who had been forecasting an RBA rate cut in November and February, now believes rate relief is off the menu for the foreseeable future.
"The RBA will now keep the policy rate on hold as it waits to assess the durability of recent material upside surprises to both inflation and the unemployment rate," Boak said (quoted by The Australian Financial Review).
Westpac Banking Corp (ASX: WBC) chief economist Luci Ellis also believes the increase in inflation dims the hope of rate cuts in 2025. But she noted the September quarter uptick might not persist.
"The near-term does look higher now, even with some payback, but it would be an over-interpretation of the data to carry the September quarterly outcomes forward as a new trend," Ellis said.
Despite elevated interest rates and the ongoing battle against inflation, the ASX 200 has gained 8.9% over the past year.
