Australian SMEs are having their resilience tested once again, as a surprise spike in inflation further squeezes bottom lines and slashes hopes of another interest rate cut.

The Reserve Bank delivered an unwanted pre-Christmas gift as it revealed the Consumer Price Index (CPI) rose 3.8% in the 12 months to October 2025. That was up from 3.6% in the 12 months to September, and was higher than forecast. 

“Today’s CPI data is disappointing,” said Employment Hero CEO Ben Thompson. “Inflation is still running too hot. Employers are working hard to keep wages moving, but they can’t outrun rising prices on the essentials.”

Some Prices Are Rising Faster Than Others

The largest drivers of the inflation hike were a 5.9 per cent rise in the cost of housing and a 3.2 per cent increase in both food and non-alcoholic beverages, and recreation and culture. An end to state and territory energy rebates contributed to the increase in housing costs. The Australian Chamber of Commerce and Industry said the price of electricity surged by 37 per cent in the twelve months to October.

Thompson said amid rising business input costs, wage growth couldn’t keep up. “I speak constantly with business owners who are trying to do right by their teams, but they’re being squeezed from every angle. Our data shows wages are up 4.8 per cent year-on-year, which sounds manageable compared to 3.8% CPI, but that’s led by a 5.9 per cent bump in housing prices, so pay packets simply don’t stretch far enough for most.”

The Cost Crunch Is Being Felt In The Labour Market

Thompson said Employment Hero data showed SMEs were doing their best to keep labour costs flexible. “Wages are growing but hours worked have slipped 1.0 per cent while casual roles jumped 9.5 per cent.”

He said hiring trends suggested some sectors were managing higher costs better than others.  “You can feel it across industries. Tech, which is historically quite steady in hiring and wages, is seeing a hiring lull. It’s down 6 per cent year-on-year in Brisbane, 3.6 per cent in Adelaide and 0.4 per cent in Perth. Meanwhile retail and hospo are scrambling for staff ahead of peak season, relying heavily on casuals to get through the next few months.”

There’s Now Less Change Of An Interest Rate Cut 

The CPI announcement may have dashed hopes of an interest rate cut next month, as a chorus of experts predicted the RBA would now keep rates on hold in December and possibly consider a rate increase. 

Assisting the Bank in its decision-making, CPI data is now being collected on a monthly rather than quarterly basis, giving RBA board members more detailed and up-to-date inflation data.

Said Ben Thompson: “With the RBA now leaning on monthly CPI to help guide rate decisions, today’s figure puts even more pressure on December’s call.  Rising inflation is the last thing employers or workers need to see. Low-margin sectors like retail and hospo will feel it the most with Black Friday sales, and Christmas just days away. We’ll see them lean even more on casual shifts and shorter rosters as they try to stay ahead of rising costs.”

SMEs will watch with interest as the RBA board next meets to determine interest rates on December 9.