All four major banks now tipping November hike as inflation jumps

The changes come after September-quarter inflation came in hotter-than-expected.

The Australian Bureau of Statistics (ABS) said on Wednesday (28 October) that trimmed mean inflation, the RBA's preferred underlying measure, rose to 3.7 per cent annually in September, from 3.6 per cent in June.

The result beat expectations for underlying inflation to hold steady and far exceeded the RBA's 3.4 per cent forecast.

Meanwhile, headline inflation climbed to 4.3 per cent from 4 per cent in August, largely due to a 9.4 per cent petrol price jump.

CBA flips its call

CBA said the September CPI figures had settled the debate, with a quarter-point rise to 4.85 per cent now its base case for next week's meeting.

"We now expect the RBA to hike the cash rate by 25bp to 4.85 per cent. There are no guarantees it will be unanimous given the back-to-back hikes," the bank said.

"The key question is whether four hikes this year is enough. Recent RBA communications have been hawkish and suggest the answer is no. Inflation remains too high in their minds and risks continue to sit to the upside."

CBA added that the print confirmed the view it had been edging toward and framed the move as a pre-emptive strike against entrenched inflation.

"The September quarter CPI print affirmed our view that a rate hike is on the cards next week,” it noted.

"As a result, we see the hike in November as an insurance hike to protect against these forces. Acting early and acting decisively should manage the risk of inflation being higher for even longer."

However, it conceded that the squeeze from five hikes in a single year would substantially slow the economy.

"We expect the tone of the meeting to still talk tough on inflation amid these pressures from offshore and domestic capacity concerns. Five rate hikes in 2026 will also have a clear impact on the economy,” it noted.

NAB updates its forecast

Similarly, the economics team at NAB have said they expect the RBA to hike in November.

"We now believe that the RBA will deliver a 25bp hike in November. While inflation has printed broadly in line with our prior expectation, two things are now clear," it said.

"First, it looks likely that the updated forecasts in the November SoMP, released next week, will reveal an upward revision to the staff’s estimate of NAIRU. It is instructive that the Governor noted today that “Despite the unemployment rate recently rising a little more than we had expected, the labour market seems a little tighter than we had previously judged. The evidence for this is elevated underlying inflationary pressures.”

"Effectively, this implies that despite the unemployment rate sitting 60bp above where it was at the start of the year, the Bank no longer believes this reflects as much of a loosening in the labour market as previously thought. And it follows that a higher unemployment rate is now required to generate the requisite disinflationary pressures on domestic prices. This will require an ongoing slowing in GDP growth, and more restrictive monetary policy to forecast inflation back to target by early 2028."

The bank continued: "Second, the broader inflationary backdrop continues to present challenges for the RBA. Both oil and refined product prices are elevated, cost push inflation is evident in domestic inflationary dynamics and Bank officials have stressed of late that global forces appear to be supporting higher inflation outcomes too. Moreover, they remain concerned about the potential for inflation expectations to move higher the longer inflation remains above target."

It added that broad-based inflationary pressures—compounded by rising energy costs and upcoming price adjustments—are set to drive upward revisions to the RBA's underlying inflation forecasts and delay its return to target. Consequently, these persistent capacity pressures make an interest rate hike in November likely.

"A 25bp hike in November will see the cash rate at 4.85 per cent in November, 150bps above the RBA’s estimate of neutral (~3.4 per cent) and 50bps above the previous peak. Based on historical experience, a gap of this magnitude should be consistent with restrictive monetary policy and thus leave the balance of risks to domestic monetary policy more balanced from here.

"Still, powerful structural forces are at play, and all of these are working in the direction of higher short- and long-end rates. As such, we expect that the RBA will likely pause post November but will nonetheless remain a long way from declaring victory on inflation and the end of the tightening cycle," NAB's economics team said.

Westpac and ANZ hold firm

Westpac, which was already forecasting a November rise, said the CPI data and Senate testimony from the RBA's senior leadership on Wednesday had only reaffirmed its call.

"We reaffirm our expectation that the RBA Monetary Policy Board will again increase the cash rate at the November meeting. Today's inflation data and Senate testimony are the final pieces of information before the RBA Monetary Policy Board (MPB) meets next week,” Westpac’s chief economist Luci Ellis said on Wednesday.

“Recent data and communication have consistently pointed to the staff recommending an increase in the cash rate. We expect a majority of the external members to agree, though some members might dissent.”

It noted that inflation was significantly overshooting both the target band and RBA's August projections, while cautioning that more hikes could follow.

"Inflation is above target, and above what the RBA's August forecasts implied. Some upside risks identified in August have partially materialised, particularly energy prices,” Ellis outlined.

"Clearly, though, the risks of another hike – most likely in February – have increased."

ANZ said that the September CPI data cemented its existing forecast and added that the risks the RBA had been flagging were now materialising.

"Today's inflation data cements the case for the RBA to hike rates 25bp in November," ANZ said.

"It appears the upside inflation risks the RBA has been focussing on – around oil prices, the AI tech boom and domestic capacity constraints – are materialising and will see a 25bp rate hike in November."

Markets now imply an 87 per cent chance of a fifth hike to 4.85 per cent on Melbourne Cup day, up from 69 per cent before the data was released, and are fully pricing a move by Christmas.

RBA flags materialising risks

The updates come as governor Michele Bullock told a Senate estimates hearing on Wednesday that the jobs market was slightly tighter than forecast while inflation was running above the RBA's August projection.

"At the time of the August board meeting, we assessed that the risks to that outlook were skewed to the upside," Bullock told Senate estimates.

"Developments since then suggest that although growth in the Australian economy is slowing as expected, some of the international and domestic upside risks to inflation have materialised or are materialising."

She also pointed to the re-escalating Middle East conflict and surging energy prices as major drivers of inflation.

"Inflation will therefore likely be higher than was our base case in August, the conflict in the Middle East has re-escalated, and global energy prices are now much higher than had been assumed in the August forecasts,” she said.

Deputy governor Andrew Hauser, reacting in live time to the inflation release, said that the numbers were “too high.”

However, he said that the figures landed where policymakers and markets anticipated.

"These numbers are broadly in line with the market expectations, and candidly, where we thought it would be as well,” he said.

Treasurer Jim Chalmers meanwhile said that inflation was forecast to return to the RBA's 2–3 per cent target band "towards the end of next calendar year".

He labelled the figures "still too high" and pointed to the ongoing Middle East war's effect on fuelling inflation across advanced economies.

[Related: 'Nightmare’: RBA’s inflation warning puts another hike in play]