Economic Update - October 2025

Stronger than expected inflation data for the September quarter and a jump in unemployment in Australia have scuttled any chance of a rate cut soon. Despite disappointment from mortgage holders, the RBA remains calmly confident and cautious. The US government shutdown seems entrenched. Unpaid air-traffic controllers are not showing up, which is leading to chaos at terminals. Meanwhile, the Fed is flying blind because of a lack of its usual data. US and China trade talks seem to go around in circles with both sides trading carrots and sticks until the next 90-day deadline.  

What happened in Australia?

The RBA was hit in the dual mandate in October with both September-quarter inflation and September unemployment surprising on the upside.

Headline inflation increased from 2.1% to 3.2% on an annual basis, while the RBA’s preferred measure, trimmed-mean inflation, increased from 2.7% to 3% (see chart below). The RBA’s target band is 2% to 3%.

Elevated results for the monthly inflation indicator in July and August hinted September could be high, but the chart below shows that the September-quarter inflation results still surprised markets on the upside - after the release of the September-quarter data on October 29, expectations of an NBA rate cut in November fell sharply.

Source: ASX RBA Rate Tracker

Unemployment increased from 4.3% in August to 4.5% in September, seasonally adjusted. This was the highest unemployment rate since November 2021 (see chart below). However, other measures continue to show that the labour market remains tight.

Household spending increased by 0.1% in August on a monthly basis, while business turnover fell 2.2% (both seasonally adjusted). Household spending slowed after strong growth in May to July. Business turnover is bouncing around a bit with an increase of 3.1% in July preceding the 2.1% decrease in August. Looking at consumer and business sentiment, businesses remain more optimistic about the economy than consumers (see chart below).

On the political front, Prime Minister Anthony Albanese was finally able to meet with President Donald Trump, announcing a critical minerals deal with the US. Trump also reaffirmed the US’s commitment to helping Australia with nuclear submarines as part of the AUKUS deal.

Source: Westpac

What happened around the world?

USA

Fed Reserve Chair Jerome Powell likes a challenge, and he is getting it at the moment! The federal government shutdown has stopped the usual flow of ‌economic data from government agencies such as the Bureau of Labor Statistics and the Bureau of Economic Analysis. This is data that the Fed heavily relies on.

“We don’t expect we’d be able to replace the data we’re not getting.” Jerome Powell.

The BLS made special provision to publish the September CPI but only because it is required by law as it is needed for indexing government-provided benefits. CPI came in lower than expected at 3% on an annual basis versus an expected 3.1%. Core inflation actually decreased from 3.1% in August to 3% in September (see chart below). A week later, the Fed cut interest rates by 25 bps.

With the dearth of official data, the Fed and the market have turned to estimates and private data. If the data can be relied on, then the US economy is doing ok. The Atlanta Fed’s GDPNow shows an economy chugging away at higher than market forecasts (see chart below). The Cleveland Fed's "Inflation Nowcasting” has October CPI slightly lower than the official results for September.

Source: Atlanta Federal Reserve

HR software company ADP’s employment report shows private employment returning to positive growth in October after two months of decrease (see chart below).

After spending most of the month trading in non-tariff barrier threats such as port fees and restrictions on rare earth minerals, Trump and President Xi Jinping got together and agreed on a new framework for trade talks. Trump gave the meeting a “12 out of 10”. Most commentators see just another pause.

“The middle east has its oil, China has rare earth … it is of extremely important strategic significance.” Deng Xiaoping, president of China from 1978 to 1989.

China

China’s economy grew at its slowest pace in a year in the September quarter, decreasing from 5.2% in the June quarter to 4.8% (see chart below).

House prices decreased again, and consumer demand remains weak. However, exports continue to be a bright spot. Exports increased by 8.3% in September, smashing forecasts of 6%. China continues to find new opportunities outside the US (see chart below).

Source: ING

EU

French Prime Minister Sébastien Lecornu was coming, going, and then stayed as he wrangled a new cabinet despite opposition from the left and right. He did however have to freeze President Macron’s 2023 pension reforms, despite earlier saying they were non-negotiable.

“I would not endorse a result that would jeopardise the credibility of the country, let alone our entire pension system.” Sébastien Lecornu.

Inflation increased from 2% in August to 2.2% in September, but early estimates have it decreasing to 2.1% in October. As expected, the ECB kept rates on hold. The first estimate for September-quarter GDP shows a slight decrease for the Euro Area from 1.5% to 1.3% on an annual basis.

“So the dis-inflationary process is over and we are in a good place, and we intend to stay in that good place, and to do what is required to stay in that good place.” Christine Lagarde, ECB, president.

Japan

The LDP made a bold choice in electing Sanae Takaichi as Prime Minister in October. And in the end it took the formation of a new coalition. While Margaret Thatcher is her hero, the late Prime Minister Shinzo Abe is her role model for economic policy. Expect further deregulation, spending, and conservative social policy. Coincidentally, a senior IMF official warned Japan against raising debt much further.

Inflation excluding food rose from 2.7% in August to 2.9% in September (see chart below). The BoJ kept rates on hold, while Takaichi announced measures to help address cost pressures.  

Source: Bloomberg

UK

Inflation was stuck at 3.8% for the third month in a row. No signs yet of the BoE’s expected decline! In good news manufacturing PMI increased to its highest level in a year to 49.7 in October, just below 50 and expansion.  

New Zealand

Given New Zealand’s weak economic growth, the RBNZ cut rates by 50 bps at the start of October. Later in the month, September-quarter inflation figures were released showing an increase from 2.7% in the June quarter to 3%. Electricity prices increased 11.3% on an annual basis. While not ideal, the RBNZ believes that inflation will fall to 2% over the first half of 2026 given the spare capacity in the economy.

What this means for Australian Private Debt

Inflation is proving stubborn, but the RBA believes it remains under control. Meanwhile, the economy remains resilient. Don’t expect a rate cut soon, but neither is a rise necessary.