The major bank has adjusted its cash rate forecast, suggesting there will be no more rate cuts this year given new inflation data.
National Australia Bank (NAB) has revised its cash rate forecast after headline inflation accelerated in August to reach its highest annual pace since July 2024.
The monthly Consumer Price Index (CPI) indicator rose 3.0 per cent in the 12 months to August 2025, after a 2.8 per cent year-on-year rise in July, according to Australian Bureau of Statistics (ABS) data.
Annual trimmed mean inflation, or underlying inflation, which excluded the rise in electricity prices, eased to 2.6 per cent in August from 2.7 per cent in July to inch closer to the midpoint of the Reserve Bank of Australia's (RBA) target range.
Excluding volatile items and holiday travel, monthly headline inflation rose 3.4 per cent in the year to August, following a 3.2 per cent rise in the 12 months to July. The series excludes automotive fuel, fruit and vegetables, holiday travel, and accommodation.
The largest contributors to the pick-up in headline inflation were housing (up 4.5 per cent), food and non-alcoholic beverages (rising 3.0 per cent), and alcohol and tobacco (up 6.0 per cent).
New dwelling prices, which capture new builds and major renovations, rose 0.7 per cent, compared to a 0.4 per cent for the previous month.
In the month of August, new dwelling prices rose 0.4 per cent as project home builders increased prices and reduced discounts and promotional offers in some cities.
Given the monthly inflation data, NAB senior markets economist Taylor Nugent said “the risks have shifted”.
The major bank has therefore changed its cash rate forecast.
While it previously predicted 25 basis point cuts in November 2025 and another in February 2026, it is now forecasting the RBA to hold rates at 3.6 per cent until May 2026.
“The outcome of the August Indicator suggests there is meaningfully more inflation pressure in the domestic economy than we, and the RBA, had expected,” Nugent said.
Monthly CPI muddies waters for RBA
Banks are widely tipping the RBA to leave the cash rate unchanged when its Monetary Policy Board next meets next week.
Commenting on the latest inflation data, Nugent noted that market services prices are “going to be hot” in the third quarter, “muddying the RBA’s assessment of the supply and demand balance in the economy and shifting their assessment of the balance of risks as they look forward”.
“The RBA’s normalisation cycle is now well progressed but NAB had expected that inflation near target and a labour market near full employment would give the RBA room to cut a little further,” he said.
Australia and New Zealand Banking Group (ANZ) head of Australian economics, Adam Boyton, said he does not expect any change in the cash rate from the RBA next week.
However, he added: “But, these inflation data are likely to contribute to the recent shift in RBA tone.
“Key data between now and the November Monetary Policy Board meeting includes the September labour force, household spending data and Q3 CPI. Depending on how those data land, it is possible that the meeting might end up a very close-run thing.”
Commonwealth Bank of Australia (CBA) economists Harry Ottley and Trent Saunders said the key takeaway from the data was that a November cut was “not a done deal”.
“We remain comfortable with our base case that the RBA will cut the cash rate in November to a terminal rate of 3.35 per cent. Today’s data however suggests this is not a done deal and tension is building in the economic data,” they said.
Commenting on next week's cash rate decision, CBA's head of Australian economics Belinda Allen said: ”The RBA are likely to find themselves in a tougher position than recent meetings. There is real tension building in the data flow. The August CPI indicates material upside risks to Q3 inflation, a cyclical upswing in the activity data is also clear but there are signs of softer employment and moderating wages growth.”
Westpac senior economist Justin Smirk noted that the bank’s estimate for September quarter trimmed mean inflation is 2.5 per cent, the midpoint of the RBA’s target range.
The next RBA Monetary Policy Board meeting is on 29–30 September.
[Related: Monthly inflation accelerates, cementing expectations for Sep rate hold]
