The Comeback No One Asked For
Just when we thought inflation was finally getting the hint – it’s back, uninvited and overstaying its welcome.
After months of cautious optimism, Australia’s latest CPI print landed with a thud: inflation has crept back up to 3.2%. Electricity prices surged 9% in just three months, bringing the annual increase to 23%. Petrol’s climbing again, grocery bills are swelling, and even your morning coffee has
become a small act of financial defiance.
The Reserve Bank had been quietly flirting with the idea of a Christmas rate cut. That fantasy just got iced.
The Reality Check
Let’s be clear – this isn’t just a statistical blip. It’s what happens when costs become embedded.
Wages are rising, energy’s stubbornly high, rents are still running hot, and businesses are now passing on price pressures instead of absorbing them. “Transitory” has officially left the chat.
Core inflation – the measure the RBA actually loses sleep over – remains well above target. That means policy can’t loosen without reigniting the very fire they’ve spent two years trying to contain.
Globally, we’re not alone. The US is wrestling with inflation hovering near 3.4%, the UK still can’t crack below 2.8%, and even Europe’s central bankers are stuck between soft growth and sticky prices. The inflation beast might be tamer, but it’s far from dead.
The Consumer Squeeze
For households, the pain is personal. Power bills up. Groceries up. Insurance premiums quietly creeping higher. Disposable income? Not so much.
The result: people are cutting back, but not enough to break the cycle. Retail sales are flattening, but services inflation – the cost of everything from haircuts to holidays – is still humming.
Businesses are in the same boat. Restaurants, trades, and local cafes are raising prices just to keep the lights on. The “cost of living crisis” isn’t a headline – it’s a business model challenge.
The RBA’s Tightrope
So where to from here?
The RBA’s in a bind. Cut rates, and you risk fuelling demand just as prices rise again. Hold or hike, and you choke growth further. It’s economic whack-a-mole – tame one problem, another pops up.
Markets are now pushing expectations of any rate cut well into late 2025, with some economists even suggesting another small hike could be back on the table if inflation refuses to budge.
What It Means for Investors
For investors, this is a time to play offence and defence.
Inflation eats away at purchasing power and compresses margins – so focus on resilience. Look for companies with genuine pricing power, strong balance sheets, and sticky customer demand. Think healthcare, infrastructure, utilities, and quality industrials over speculative tech.
Fixed income is finally offering meaningful yields again, but duration risk still matters. And don’t forget cash – optionality is underrated when volatility creeps back in.
The key takeaway? Inflation isn’t going quietly. The smart money’s not betting on hope – it’s building for endurance.