Unexpected inflation has ground the current interest rate easing cycle to a halt. In our November 2025 economic update, we investigate whether conditions may align for the Reserve Bank of Australia (RBA) to resume rate cuts – and when such a shift might occur.
We also unpack the continued rise of house prices across Australia, and turn our attention to the impact of the United States government shutdown, as well as the critical minerals deal between the US and Australia.
Inflation surprise sets up an RBA decision that wasn’t surprising at all
Australia’s monthly consumer price index rose 3.5% across the year to 30 September 2025, up from 3.0% in August and higher than the 3.1% forecast. Driven by rising housing and transport costs, this marked the highest CPI figure since July 2024.
Given back-to-back months of the CPI Indicator increasing more than expected, it was not a shock that Australia’s underlying inflation for the September 2025 quarter also exceeded market expectations. Underlying inflation for the period was 3.0%, above the 2.7% forecast and an increase on the prior quarter, which also came in at 2.7%. This marks the first time that underlying inflation has increased on the prior quarter since December 2022.
These inflation figures were surprising to most and paved the way for a decision that was not surprising at all – the RBA deciding to leave the cash rate unchanged at 3.60%, at their 4 November 2025 Board meeting.
Is the easing cycle over?
That remains uncertain. While some forecasts point to potential rate cuts in 2026, such a move would likely require either a rise in unemployment, inflation to return to the RBA’s target range, or a combination of both.
Both the CPI Indicator and underlying inflation are expected to reduce over the remainder of 2025 according to Trading Economics, with recent spikes largely considered isolated events. Should this eventuate, then further easing could be expected in 2026. However, the RBA has indicated that it expects underlying inflation to moderate at a slower pace.
Unemployment also exceeded expectations, increasing to 4.5% in September from 4.3% in August 2025. If inflation continued to sit at levels uncomfortable to the RBA, Australia’s unemployment rate would need to rise significantly to facilitate further monetary policy easing.
However, unemployment decreased to 4.3% in October and is expected to decrease further over coming months to finish the year at 4.2%, so it’s unlikely that this alone will force a further rate cut in the foreseeable future.
Ultimately further easing in 2026 will likely be dependent on how fast inflation moderates between now and then.
House prices continue to rise
As mentioned earlier, house prices continue to rise. The Cotality Home Value Index rose 1.1% month-on-month in October, representing the fastest monthly gain since June 2023. All capital cities saw gains in October, headlined by Perth (1.9%), Brisbane (1.6%) and Adelaide (1.4%).
On an annual basis, national home values climbed 5.7% across the year to October 2025.
Unsurprisingly, demand continues to outpace supply. Cotality reports that home sales are tracking 3.1% above average, compared to advertised supply levels that are sitting 18% below average.
The expansion of the Federal Government’s First Home Buyer Guarantee scheme and RBA’s easing cycle are both factors responsible for boosting demand. However, the unexpected inflation outlined earlier and renewed cost-of-living pressures, alongside uncertainty surrounding whether the interest rate easing cycle will continue are likely to temper demand in the near term.
On the supply side, private house approvals in Australia rose 4.0% month-on-month in September, after a 1.0% fall in August. Approvals totalled 9,547 units, the highest monthly figure since August 2022.
Building approvals rebound in September
After two negative months, building approvals rebounded in September by 12.0% when compared to August. Victoria and New South Wales led the way, increasing by 41.3% and 30.4%, respectively.
On an annual basis, total dwelling approvals increased 15.3% over the year to September 2025.
United States Government shutdown
On Wednesday 5 November, the United States Government shutdown entered its 36th full day, officially making it the longest in history. An estimated 670,000 federal workers were furloughed throughout the shutdown and another 730,000 were working without pay.
Additional disruptions included the interruption to food assistance benefits, small business loans and federal contractors, and thousands of delayed and cancelled flights, as the Federal Aviation Administration dealt with staff shortages.
What is the economic impact?
Growth, unsurprisingly, is set to be hampered by the shutdown, with annualised gross domestic product growth in the December 2025 quarter likely to be 1.0% to 2.0% lower than pre-shutdown forecasts.
A rebound in spending and commercial activity is likely to occur off the back of the shutdown, clawing back some losses. Ultimately, the United States Congressional Budget Office estimates that the economic cost of this shutdown will land in the $7 billion to $14 billion range. This represents between 0.023% to 0.046% of the Unites States’ $30 trillion economy.
Australia and the United States strike critical minerals deal
In contrast to the uncertainty surrounding the shutdown, ties between Australia and the United States strengthened with the signing of an historical critical minerals framework. The framework will deliver a US / Australia secured supply chain for critical minerals and rare earths, required for defence and other advanced economies.
As part of the broader announcement, both the United States and Australia committed to provide at least US$1 billion each in investments towards a US$8.5 billion pipeline of priority minerals projects in both countries over the next six months.
For Australia, the deal deepens defence and technology ties under other frameworks like AUKUS, aligning Australia’s critical minerals sector with the United States’ national security priorities. Overall, the framework signals long-term support for the sector and a favourable policy environment for resource development.
While the unexpected inflation spike has paused the RBA’s easing cycle for now, moderating inflation and elevated unemployment may pave the way for further cuts in 2026. However, as recent data has indicated, forecasts must be taken with a grain of salt. Meanwhile, rising house prices and global developments, including the US-Australia critical minerals deal, continue to shape Australia’s economic outlook.
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