Pre-Christmas rate relief dashed after inflation spike

Home owners are unlikely to receive further relief on interest rates for the rest of the year after a surge in inflation.

The latest figures showed headline inflation for the September quarter rose from 2.1 per cent to 3.2 per cent.

It was the first time it has left the Reserve Bank's target band of two-to-three per cent in more than a year.

Underlying inflation, the preferred measure for the central bank, rose in the three months to September to hit an annual reading of three per cent.

The larger-than expected inflation numbers led all four major banks to forecast no further rate cuts for the rest of the year.

Commonwealth and Westpac revised their forecasts to predict rates would stay at 3.6 per cent for the rest of 2025.

ANZ said the next cut would likely be in February, while NAB said borrowers would have to wait until May for any relief from the Reserve Bank.

Sally Tindall from financial comparison website Canstar said the central bank was juggling several challenges.

"The higher-than-expected unemployment figures highlight the competing priorities for the central bank of reining in inflation and keeping Australians in jobs," she said.

"Three months of higher-than-expected monthly inflation results rules out further cash rate cuts in 2025."

The increase to headline inflation has largely been put down to the roll-off of state power bill rebates, meaning many households have needed to pay higher electricity prices.

Analysts were widely expecting consumer prices to rise, but the strong increase caught many experts off guard.

Ben Udy from Oxford Economics Australia said the central bank's board would likely be wary of cutting interest rates while consumer prices were increasing so quickly.

"The 1.3 per cent quarter-on-quarter rise in the CPI was faster than the RBA had been anticipating and delivers a knockout blow to any remaining hope of a November rate cut," he said.

The Reserve Bank indicated it would closely examine inflation data before making its next interest rate decision on Melbourne Cup day.

Economists still expect further rate cuts from the current level of 3.6 per cent, either in December or early next year.

CreditorWatch chief economist Ivan Colhoun said inflation was more entrenched than predicted by the Reserve Bank.

"Services inflation remains persistently high - driven by wages, energy costs, and government charges - while previously moderating categories like insurance and new dwellings are rising again," he said.

Treasurer Jim Chalmers conceded inflation increased but said it was still better than what Labor inherited.

Shadow treasurer Ted O'Brien said government spending was making the economic situation more challenging for households and the Reserve Bank.

"You have a situation where both inflation and unemployment are above the RBA forecast, creating a diabolical situation," he told reporters.