The Forward View Australia, October 2025 - Torn: between a hold and a hard place

23 October 2025 
Economy and Markets

• Data from the past month points to challenges for RBA to stick soft landing
• Underlying inflation rose in August (CPI up 0.9% qoq)
• Unemployment hit 4.5% in September – the highest since June 2021, with eyes on next month’s data to confirm trend

NAB’s rate call remains unchanged, expecting the RBA to remain on hold in November, but Q3 CPI and labour data are under close watch. 

Overview

Data over the past month suggests the economy has maintained its momentum in Q3 after accelerating in H1 2025. The NAB Monthly Business Survey shows that both business confidence and conditions consolidated the improvement seen through mid-2025. In addition, our transactions data points to a solid rise in spending (in nominal terms) in September, consistent with another solid quarter for consumption growth.

However, the monthly CPI indicator (an upward surprise) and the labour force data (a downside surprise) released over the past month pose a challenge for the RBA. If the Q3 trimmed mean CPI prints in line with our forecast (0.9% qoq), we think the RBA will remain cautious (and on hold) in November, despite the recent uptick in the unemployment rate. In trying to assess the true demand/supply capacity of the economy in real time, the RBA will take some signal from the upside surprise in the market services components of the CPI and will require more time to gain the confidence that inflation will settle at around the middle of the target band. However, a rising unemployment rate and a build-up in spare capacity in the economy would change this picture and upcoming unemployment prints will be important in assessing this. We acknowledge the risk is to a -being delivered earlier than our current May projection.

That said, we have not changed our forecasts for growth (returning to trend through 2026) and the labour market (unemployment peaking at just below 4.5% in quarter average terms). Inflation is expected to be slightly higher in the near-term but ease back towards 2.5%, largely keeping the soft landing intact.

Read more in The Forward View - Australia, October 2025 (PDF, 996KB)