Electricity drove inflation
Inflation accelerated in the September quarter, with annual CPI growth rising to 3.2% from 2.1%. The trimmed mean also rose from 2.7% to 3%.
The main driver of the increase was a 23.6% rise in electricity costs, largely driven by July 2025 price hikes and conclusion of some state government household subsidy schemes.
However, broad price rises were seen across the board, indicating underlying inflationary pressures – beyond energy prices – were also rising.
Non-traded goods inflation rose to 4.1% in September quarter, indicating that domestic factors explain the bulk of this inflationary spike.
Fragile recovery in household spending
Australian household spending saw a slight increase, driven by higher expenditures on recreation and culture, healthcare, and food.
Household spending volumes rose 2.7% in real terms in the September quarter — the strongest annual growth since March 2024.
Real spending increased for both non-discretionary items (4.0%) and discretionary items (1.3%) were over the quarter.
While household spending remains above last year’s levels, the latest figures highlight the recovery is weak, which matches the recent drop in consumer confidence.
Business turnover rose in September
Business turnover rebounded in September 2025 with a seasonally adjusted increase of 2.2%. Growth was recorded in 11 out of 13 industries.
The manufacturing sector led the surge with a 7.0% rise in turnover — the highest monthly increase ever recorded — making it the primary contributor to the overall growth.
Other notable increases included mining (4.0%), utilities (2.8%), and telecommunications (2.7%). In contrast, turnover fell in construction (-1.0%) and arts and recreation services (-1.3%).
Productivity drags on growth
Australia’s economic growth outlook is weakening due to persistently low productivity.
The RBA has steadily downgraded its GDP growth forecasts over the last two years. It now expects the outlook to be 0.5% lower than it did in late 2023.
The main issue is productivity, which historically grew at 1.3% annually but is now expected to grow only 0.7%. This lowers the economy’s sustainable growth ceiling to around 2.0% p.a.
In dollar terms, this 0.5% lower growth outlook will cost the economy $13.5 billion annually.
Real labour costs surge with wages growth
Real labour costs for employers have surged as a result of a tight labour market and high wages growth.
In the 2024-25 financial year, the real (inflation adjusted) unit cost of labour grew by a 2.7% across the Australian economy. Normally, real unit labour costs steadily decline over time – not rise!
Despite a 2.7% annual rise, this is lower than last year peak 3.1% but still above levels seen during the 1990s recession and the mining boom.
The increase in real labour costs is driven by high wages growth, which is currently outstripping both inflation and economic growth more broadly.
Workforce participation challenges
In 2024–25, around 1.2 million individuals were not employed but expressed a desire to work. Of these, 11% were not available to start within four weeks.
For women, the leading reason for unavailability remained “caring for children” (43%), slightly down compared to previous year. This reason was even more prominent among mothers with children under 15, at 70%.
For men, the most common reason for being men being unavailable was a “long-term health condition or disability” (39%).
Improving access to childcare, inclusive workplaces, and health support is essential to lifting workforce participation and drive productivity growth.
