Australia’s 3.8% Inflation Shock Kills Rate Cut Hopes: Which ASX Stocks Are Most at Risk?

Australia’s latest inflation numbers have shocked the market, and it could change the outlook for interest rates. The Consumer Price Index (CPI) rose 3.8% in the year to October 2025, up from 3.6% in September. Economists had expected it to stay flat, so this jump was a surprise, and it’s now the highest inflation rate since June 2024.
Even more worrying for the Reserve Bank of Australia (RBA) is the trimmed mean, which removes volatile items like fuel and food. This measure climbed to 3.3%, above the RBA’s target ceiling of 3%. It’s the fourth month in a row that inflation has come in hotter than expected. For investors, this means hopes of more rate cuts may fade, and rate-sensitive ASX stocks could face pressure.

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Rate Hikes Back on the Table as Economists Split

The October data have triggered a dramatic shift in rate expectations. Both Barrenjoey and UBS now forecast that rather than easing, the RBA will be forced to tighten monetary policy.
“The next RBA move is more likely to be a hike than a cut,” said Andrew Lilley, chief rate strategist at Barrenjoey. “There is now more of a trend of higher inflation, which is becoming concerning,” added George Tharenou, chief economist for Australia at UBS.
Not all economists agree. ANZ and Westpac are still predicting at least one more cut in 2026, while JP Morgan analyst Tom Kennedy believes the upside surprise is not “sufficient for rate hikes to creep into the RBA’s internal discussion.”
What’s driving the surprise? Electricity costs jumped 37.1% during the month as state government electricity rebates ended. Meanwhile, rents rose 4.2% year-on-year, keeping sustained pressure on household budgets.

Three ASX Sectors Facing the Most Pressure

For investors, the key question is which stocks are most vulnerable if rates stay higher for longer or rise further. Here are the sectors we believe warrant caution:

REITs: Goodman Group (ASX: GMG) and Scentre Group (ASX: SCG)

REITs hold property investments with long-term lifespans, so fluctuations in yields significantly affect both their valuations and the present value of future earnings. Higher rates increase borrowing costs, compress property valuations, and make REIT dividend yields less attractive compared to risk-free alternatives like government bonds.
Goodman Group (ASX: GMG), the largest REIT on the ASX with a market cap of $67.2 billion, and Scentre Group (ASX: SCG) at $21.3 billion are the two most prominent names in this space. Scentre recently completed a €500 million floating rate note offering to refinance existing debt, highlighting how actively REITs must manage their debt profiles in this environment.

Growth Tech: Duration Risk Remains Elevated

Biotech and tech stocks are classic long-duration, risk-on sectors because they’re often investing money into long-dated future cash flows, so they’re obviously very sensitive to interest rates. ASX tech names that rely on future earnings rather than current profits tend to suffer when discount rates rise, as higher rates reduce the present value of those distant cash flows.

Consumer Discretionary: JB Hi-Fi (ASX: JBH) Under Watch

Consumer discretionary items are often deemed non-essential, making their sales particularly sensitive to economic fluctuations. A high-interest-rate environment can stifle consumer spending, leading to stagnation or declines in revenue.
JB Hi-Fi (ASX: JBH) shares fell 5.1% following the inflation news, with analysts noting the stock “could be catching some headwinds” as the odds of another RBA interest rate cut this year have plunged, which could impact consumer discretionary spending heading into the crucial holiday months.

The Investor’s Takeaway

The October inflation print represents a meaningful setback for rate-cut expectations. This pretty much confirms the RBA’s easing cycle might be over before it really started, potentially locking in the cash rate through mid-2026 at least.
We believe this warrants a cautious approach to rate-sensitive sectors. REITs face refinancing headwinds and yield compression, growth tech valuations remain vulnerable to higher discount rates, and consumer discretionary stocks may struggle as household budgets tighten further.
That said, not all stocks within these sectors will suffer equally. Companies with strong balance sheets, low debt, and pricing power should prove more resilient. JB Hi-Fi, for instance, has shown resilience despite elevated interest rates, achieving 2.5% annual revenue growth over the last three years. Investors should focus on quality names with demonstrated earnings rather than speculative growth stories that depend on rate cuts to justify their valuations.
The RBA meets on December 9. A December cut was already unlikely, but the October data make any near-term easing virtually impossible. For ASX investors, patience and selectivity will be essential in navigating the months ahead.