The October 2025 RBA Weighted Median CPI YoY reading of 2.8% marks a modest increase from the 2.7% recorded in July 2025. This figure continues the downward trajectory from the peak inflation levels seen in mid-2023, when the index reached 5.5%. Over the past 15 months, inflation has steadily declined, reflecting the cumulative impact of monetary tightening and easing supply chain pressures.

Drivers this month

• Shelter costs contributed +0.15 percentage points (pp), reflecting ongoing housing market pressures.
• Energy prices added +0.10 pp, influenced by global oil price volatility.
• Food inflation remained steady, contributing +0.05 pp.
• Used car prices slightly eased, subtracting -0.02 pp.

Policy pulse

The 2.8% reading remains above the RBA’s 2–3% inflation target band, suggesting that inflationary pressures have not fully normalized. The RBA’s recent pause in rate hikes may be tested if inflation proves sticky, though the modest rise tempers urgency for aggressive tightening.

Market lens

Immediate reaction: The Australian dollar (AUD/USD) strengthened by 0.3% within the first hour post-release, while 2-year government bond yields rose 5 basis points, reflecting increased expectations of a prolonged tightening cycle.

Alongside the Weighted Median CPI, other core macroeconomic indicators provide essential context. Australia’s unemployment rate held steady at 3.8%, near historic lows, supporting wage growth pressures. Retail sales data for September showed a 0.4% month-over-month increase, indicating resilient consumer demand despite tighter financial conditions. The Australian dollar’s trade-weighted index appreciated 1.2% over the past quarter, buoyed by commodity exports and relative monetary policy divergence.

Monetary policy & financial conditions

The RBA’s cash rate remains at 4.1%, unchanged since August 2025. Financial conditions have tightened moderately, with mortgage rates rising by approximately 40 basis points since mid-year. Credit growth slowed to 3.5% YoY, reflecting cautious borrowing amid inflation concerns. The Weighted Median CPI’s slight increase may prompt the RBA to maintain a cautious stance, balancing inflation control with growth risks.

Fiscal policy & government budget

The Australian government’s 2025–26 budget projects a deficit of 1.8% of GDP, slightly wider than the previous year’s 1.5%. Fiscal stimulus remains modest, focused on infrastructure and energy transition investments. The restrained fiscal approach limits inflationary pressures but also reduces buffers against external shocks.

Key observations include a narrowing gap between headline and core inflation measures, signaling less volatility in volatile components like food and energy. The Weighted Median CPI’s resilience relative to trimmed mean measures suggests persistent underlying price pressures in shelter and services sectors.

Market lens

Immediate reaction: Australian 2-year bond yields rose 5 basis points, reflecting increased market pricing for sustained monetary tightening. The AUD/USD pair gained 0.3%, signaling confidence in Australia’s economic resilience amid inflation data.

Looking ahead, inflation dynamics in Australia face several competing forces. On the upside, ongoing wage growth and shelter cost inflation could sustain headline inflation above 2.5% through mid-2026. Conversely, easing global commodity prices and a stronger AUD may exert downward pressure.

Bullish scenario (20% probability)

• Inflation falls below 2.5% by Q2 2026, allowing the RBA to cut rates by 50 basis points.
• Consumer spending remains robust, supporting GDP growth above 3%.
• Global commodity prices stabilize, easing input cost pressures.

Base scenario (60% probability)

• Inflation hovers between 2.7% and 3.0% through 2026, prompting a steady RBA policy stance.
• Moderate wage growth and fiscal prudence keep inflation contained.
• Financial conditions remain tight but manageable.

Bearish scenario (20% probability)

• Inflation accelerates above 3.5% due to wage-price spirals and supply shocks.
• RBA resumes rate hikes, risking economic slowdown.
• Global geopolitical tensions disrupt commodity markets, increasing volatility.

Overall, the RBA Weighted Median CPI’s slight rise signals that inflation remains a key focus. Policymakers will likely maintain a cautious approach, balancing inflation control with growth and employment objectives.

The October 2025 RBA Weighted Median CPI YoY reading of 2.8% underscores a gradual but incomplete disinflation process. While inflation has eased significantly from mid-2023’s highs, persistent shelter and energy costs keep inflation above the RBA’s preferred target range. Monetary policy is expected to remain on hold in the near term but ready to adjust if inflationary pressures intensify.

External risks, including geopolitical tensions and commodity price volatility, could disrupt the inflation outlook. Meanwhile, fiscal discipline and resilient labor markets provide some stability. Financial markets have priced in a cautious RBA, with bond yields and the AUD reflecting a balanced view of risks.

Long-run structural trends, such as demographic shifts and technological adoption, will continue to shape inflation dynamics beyond the immediate horizon. Investors and policymakers should monitor these evolving factors closely to navigate the complex macroeconomic landscape.

Since 2020, the RBA Weighted Median CPI YoY and the AUDUSD exchange rate have shown a positive correlation during inflation surges. For example, the 2023 inflation peak at 5.5% coincided with AUDUSD rising above 0.75, reflecting market expectations of aggressive RBA tightening. Conversely, periods of easing inflation saw AUDUSD weaken, illustrating the currency’s sensitivity to inflation-driven monetary policy shifts.

Year	Weighted Median CPI YoY (%)	AUDUSD Average
2020	1.5	0.70
2023	5.5	0.76
2025 (Oct)	2.8	0.72