Our economic outlook for Australia
October 14, 2025
Modest disinflation, tight labor market warrant caution
“We expect the Reserve Bank of Australia to maintain a cautious monetary policy stance, with any future easing likely to proceed at a measured pace.”
Grant Feng,
Vanguard Senior Economist
The economy is bouncing back strongly, the labor market remains steady, and price pressures are proving somewhat stubborn. Meanwhile, persistent labor market tightness and a recovery in domestic demand recovery suggest that the pace of further disinflation will likely be slow. Although tariffs are elevated, the peak of uncertainty is largely behind us, and the global economy remains resilient.
Accordingly, we expect the Reserve Bank of Australia (RBA) to maintain a cautious monetary policy stance, with any future easing likely to proceed at a measured pace.
Our baseline view is that the RBA will deliver one quarter-point cut to its cash rate target in the fourth quarter, to a year-end target of 3.35%. However, an upside surprise from the August Consumer Price Index (CPI) report, alongside the firming economic recovery, raises the risk of a rate pause. The third-quarter CPI release, scheduled for October 29, is likely to be influential.
Australia economic forecasts
Notes: GDP growth is defined as the annual change in real (inflation-adjusted) GDP in the forecast year compared with the previous year. Unemployment rate is as of December 2025. Trimmed mean inflation is the year-over-year change in the Consumer Price Index, excluding items at the extremes, as of the fourth-quarter 2025 reading. Monetary policy is the Reserve Bank of Australia’s year-end cash rate target.
Source: Vanguard.
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