Unbridled inflation an each-way bet on Cup Day rate cut
Hopes of an interest rate victory on Melbourne Cup Day could be dashed by expectations that inflation will not be reined in.
A stronger-than-expected inflation reading on Wednesday could delay any interest rate cuts when the central bank meets next week.
The data will give the Reserve Bank a better idea of the pressures on the Australian economy ahead of its board meeting in the first week of November.
Economists estimate that headline inflation will rise to around 3 percent from 2.1 percent in the last quarter.
Banks are divided on changes in headline inflation, the RBA’s preferred measure because it excludes volatile items such as energy prices.
Some experts think this figure will remain constant, while others think it will increase slightly.
Either way, Belinda Allen, Commonwealth Bank’s head of Australian economics, said the data would likely force the central bank to delay cutting interest rates until early 2026.
“We still think they will remain cautious and wait for more data before reducing cash rates again,” he told AAP.
A glimpse of where the bank might go may emerge on Monday when RBA governor Michele Bullock addresses an Association of Business Economists dinner.
Ms. Allen said price increases were particularly strong in the service sector, including healthcare, education and insurance businesses.
Ms. Allen said this increase was due either to strong demand from consumers, which allowed businesses to raise their prices, or to an increase in wage increases.
But he said the RBA would be much more likely to cut interest rates if Wednesday’s figures showed a decline in inflation.
Other economists still believe a blackout is more likely than not.
The bank has reduced the cash interest rate from 4.35 percent to 3.6 percent three times since the beginning of 2025, relieving some of the pressure on households after dramatic increases at the end of the Covid-19 pandemic.
Wall Street investors, meanwhile, are watching cooler-than-expected inflation data and upbeat corporate earnings that pushed major U.S. stock indexes to all-time high closing levels.
This increase sets the stage for next week’s earnings reports and the Fed’s expected interest rate cut.
In New York on Friday, the Dow Jones Industrial Average rose 472.51 points (1.01 percent) to 47,207.12 points, the Standard & Poor’s 500 Index rose 53.25 points (0.79 percent) to 6,791.69 points and the Nasdaq Composite rose 263.07 points (1.15 percent). It rose to 23,204.87 points.
Australian stock futures rose 26 points, or 0.28 percent, to 7,656.
The S&P/ASX200 fell 13.8 points on Friday, down 0.15 percent to 9,019 points, and the All Ordinaries index fell 11.9 points, or 0.13 percent, to 9,317.2 points.
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