Below is CBA economist Lucinda Jerogin’s round-up of this week’s economic and housing data:
Key points:
- The RBA hiked the cash rate 25bps on Tuesday to 4.60%, its highest level in 15 years. The decision was unanimous. We expect for the RBA to be on hold from here, but risks are heavily skewed to another hike and the November meeting remains live.
- The August CPI confirmed there was some pull-back in inflation following July’s unexpected spike. However, underlying inflation remains elevated, and the combined July and August outcomes suggest the Q3 inflation impulse is still strong.
- The ABS’s monthly household spending indicator was flat in August after rising by a strong 1.1% in July. A shift away from discretionary sending to essentials may signal consumers starting to pull back amid higher cost of living pressures.
- National home prices fell by 1.1% in September, leaving values 5.2% below their record high reached in March. Higher interest rates, tighter financing conditions and weaker sentiment continue to weigh on demand.
- Private sector credit grew by a stronger than expected 0.6% in August while building approvals fell 6.1%. Job vacancies eased by 0.9%/qtr implying labour demand remains resilient, but is gradually softening.
- Offshore, the conflict in Iran remained volatile. The August JOLTS survey pointed to a broadly stable US labour market, while ADP employment surprised to the upside. September CPI data from Germany, France, Italy and Spain all printed above expectations.
- The week ahead is a public holiday shortened week in NSW, ACT, SA & Qld. The local data is light on with only consumer sentiment data scheduled.
- Abroad, the Minutes from the Fed’s September meeting are due. We will also receive Canadian labour market data and Japanese labour cash earnings.
The RBA took centre stage locally this week, lifting the cash rate by 25bp to 4.60%, its highest level in 15 years. The decision was unanimous and the fourth rate hike this cycle. The Statement made it clear inflation remains too high, reflecting both domestic capacity pressures alongside global shocks from the Middle East conflict and the AI boom.
The economy is showing clear signs of slowing and the labour market is loosening, but not fast enough to get inflation back to target in a reasonable time frame, especially given renewed pressure on oil prices.
Inflation remains the Board’s top priority, but Governor Bullock acknowledged in the post meeting press conference that there are long lags for monetary policy and noted that the four rate hikes delivered will take time to flow through the economy.
Following Bullock’s comments, we view the hurdle for another hike is now higher, given somewhat dovish comments centered on monetary policy already being somewhat restrictive and the full impact of recent increases is still to come. We expect the Board to remain on hold in November. However, it will be a live meeting.
We continue to expect two rate cuts in late 2027. Inflation will remain the key watchpoint, alongside the Middle East conflict, household spending and the labour market.
The key risk, however, is that inflation remains sticky and further tightening is required. On inflation, the August CPI confirmed some pullback following July’s unexpected spike. However, underlying inflation remains elevated.
Headline inflation rose 0.7% on a seasonally adjusted basis, lifting annual growth from 3.5% to 4.0%. This matched our forecast and was slightly below consensus at 4.1%. The policy relevant monthly trimmed mean measure eased from 0.5% to 0.2%, leaving the annual rate unchanged at 3.6%.
Market services inflation remained firm at 4.1%/yr, suggesting some of July’s step-up persisted.
Taken together, the July and August outcomes point to trimmed mean inflation of around 1.0%/qtr in Q3 26. This would be above the RBA’s implied August forecast of 0.84% and keeps the November meeting live.
However, activity data released this week suggested demand is cooling, creating a more balanced picture for the RBA.
The ABS’s monthly household spending indicator recorded no growth in August after gains of 1.1% in July and 0.9% in June. Spending on discretionary items fell by 0.3%/mth, while essentials rose 0.6%/mth, driven by higher fuel costs. Excluding fuel, total spending would have fallen by 0.3%/mth. The shift toward essentials may signal households are starting to pull back as cost-of-living pressures bite. We expect slower income growth and falling housing wealth to weigh further on spending.
Indeed, the housing market downturn continues to deepen. National home prices fell 1.1% in September, the sixth consecutive monthly decline, leaving prices 5.2% below their March peak. Higher interest rates, tighter financing conditions and weaker sentiment continue to weigh on demand. We expect national dwelling prices to fall around 9% peak-to-trough this cycle.
Total dwelling approvals declined 6.1%/mth in August to 16,953. The headline decline was driven by multi-unit approvals, which fell 21.2%/mth and 2.1%/yr. By contrast, private house approvals rose by 3.7%/mth and sit 18.4% higher annually.
Labour demand also continues to cool gradually. Job vacancies fell by 0.9%/qtr and 1.4%/yr to 325k. The vacancy-to-employment ratio declined to 2.21%, well below its recent peak. Private-sector vacancies fell 2.0%/qtr, while public-sector vacancies rose 7.8%.
Offshore the conflict in Iran remained volatile. Reports early in the week suggested Tehran had proposed reopening the Strait of Hormuz and reviving nuclear negotiations. President Trump subsequently rejected the offer.
Overnight, a US official reported the Pentagon may soon deploy an additional aircraft carrier and 10,000 sailors and Marines to the Persian Gulf. The move would give US commanders more options should President Trump choose to escalate attacks on Iran. However, we assign only a 15% probability to a major US escalation that returns the conflict to the intensity seen in March.
In US economic data, consumer confidence fell to its lowest level since 2014, as high prices and the Iran conflict weighed on sentiment. The August JOLTS survey pointed to a broadly stable US labour market, while ADP employment surprised to the upside, rising by 90k in September.
In Europe, September CPI data from Germany, France, Italy and Spain all printed above expectations, adding to concerns about persistent regional inflation pressures.
Next week:
Turning attention to the week ahead and it is a public holiday shortened week in NSW, ACT, SA andQld. The local calendar is light with only consumer sentiment data scheduled.
We expect sentiment to remain in pessimistic territory amid higher interest rates, rising fuel costs and declining housing prices.
Abroad, the Minutes from the Fed’s September meeting will be in focus. Following Chair Warsh’s brief post-meeting press conference, the Minutes should provide more detail on the debate around the decision to begin tightening, views on how accommodative policy remains and the likely extent of further increases.
Canadian labour market data and Japanese labour cash earnings are also due.
