Hopes of further RBA interest rate cuts copped a big blow after the latest inflation data came in stronger than expected.
Reacceleration of core CPI. Australian CPI was up +1.3% QoQ in 3Q25, which was above consensus estimates at +1.1%. On an annualised basis, inflation is up +3.2%, which is now above RBA’s target range of 2-3%. Core inflation was also ahead of estimates. It appears Australian consumers keep on spending, with travel & holiday related activities particularly strong during the quarter (up +1.3%). In our view, the reacceleration of inflation (or at least the pace of it) has likely caught the market by a surprise. This latest inflation data removes any prospects of the RBA cutting interest rate until 2026. Australia’s inflation is largely tracking the same path as other developed markets (chart below).
Does this mean the RBA is done easing monetary policy? We don’t believe so but to state the obvious the fourth quarter inflation numbers will now be closely watched. But we must admit the signs are little concerning. The quarterly trimmed number of 1% was materially above RBA’s forecast of 0.6%. However, the reason why we continue to believe the easing cycle may not be over is that the labour market is moderating. Australia’s unemployment rate unexpectedly jumped in September to 4.5%.
Tensions between China & the U.S. appear to ease post the leaders’ meeting. It appears the highly anticipated meeting between U.S. President Donald Trump and China’s President Xi Jinping went as well as one could have hoped for. Especially considering President Trump threatened to cancel it only weeks ago after tensions flared up again. President Trump gave the meeting a score of “12” on a scale “from zero to 10.” Yes, that good! In positive developments, both Presidents agreed to extend the tariff truce – U.S. will halve fentanyl-related tariffs on Chinese goods, China will resume buying soybeans & other farm products, U.S. will extend a pause on some reciprocal tariffs and China will pause controls on rare-earth magnets. In our view, this meeting has likely resolved the simmering tensions for perhaps another year, which if one was to look at in a cynical way essentially buys U.S. President Trump a win in front of voters ahead of the U.S. Midterm elections in November 2026. In any case, the stability on the China/U.S. relationship front should be good for markets.
Gold price correction. The gold price finally caved and experienced a price correction of over 8% recently. Just before this correction, we wrote to clients warning them to take some profits:
“As our clients know, we have been pushing the bullish gold trade (when it was around US$1,800 level) for many years and continue to hold positions in gold miners & gold ETF across our equity & multi-asset mandates. However, any asset price that experiences a parabolic price rise over a very short period, should be a signal for investors to pause and take some profits.”
Where to from here for gold prices? Our medium-term view hasn’t changed on gold, and, on balance, we continue to see a supportive environment for gold prices. We see the demand from global central banks and investors seeking to diversify away from U.S. assets as supportive of gold prices. No global central bank would want to add to their U.S. exposure any time soon – with most already well exposed (perhaps over exposed) to U.S. assets / U.S. dollars. Having said that, any moderation in central bank buying could take the heat off the gold price. The chart below indicates central bank purchases have moderated which means the buying pressure is coming from retail investors. We remind investors that the gold price could dramatically fall if something breaks down with our medium-term positive thesis. We note that gold doubled in 1979-80 and 2010-11, before falling after these significant price appreciation episodes. Therefore, we continue to advocate profit taking along the way.
