Australia’s inflation rate quickened in the September quarter, boosted by higher petrol prices, adding to pressure on the Reserve Bank to hike interest rates again.
The headline consumer price index rose 1.2% in July-September, up from 0.8% in the June quarter, the Australian Bureau of Statistics reported on Wednesday. Economists had expected the quarterly rate to come in 1.1%.
At an annual rate, headline CPI was 5.4% compared with 6.0% in the June quarter. Economists had predicted the annual rate to come in at 5.3%, extending the decrease from a peak in the December quarter of 7.8%.
For the month of September alone, headline consumer prices were 5.6% higher than a year earlier, accelerating from the 4.9% record for July and 5.2% in August.
ANZ and CBA, two of three big banks to have predicted no further rate rises, shifted their view, and now forecast the RBA will push up the cash rate by 25 basis points next month.
NAB, the only one of the major banks to predict a November rate rise prior to the release of the inflation figures, now says there is the risk of a second additional rate rise. Westpac said that while inflation was not falling as fast as forecast they are still considering whether to change their stance on no further interest rate rises.
In her first speech since becoming RBA governor, Michele Bullock said on Tuesday night in Sydney that “the [RBA] board will not hesitate to raise the cash rate further if there is a material upward revision to the outlook for inflation”.
The trimmed mean inflation measure that strips out the more volatile price movers and is closely monitored by the RBA rose to 1.2% in the September quarter from 0.9% in the June quarter. Economists had forecast a 1.1% quarterly rise.
From a year ago, the increase was 5.2%, easing from the 5.9% pace in the April-June period, but still well outside the 2%-3% range that the RBA targets over time.
The Australian dollar lifted on the news as investors increased their bets of another interest rate rise by the central bank. It was buying more than 63.9 US cents at one point, up from about 63.6 US cents prior to the ABS release of inflation data.
Shares, which tend to fall when higher borrowing costs are expected to hit company profits, reversed early gains of about 0.3% to end the day roughly flat.
The ABS said the most significant price rises for the quarter were a 7.2% in automotive fuel, while rents rose 2.2%, electricity 4.2% and the cost of new homes 1.3%. Fuel prices rose the most since the March quarter of 2022, which included the start of Russia’s invasion of Ukraine.
For rents, which effect about one in three households, the increase was slower than the 2.5% rise in the June quarter. The largest increase in the commonwealth rent assistance for 30 years helped moderate the size of the rise by 0.3 percentage points, the ABS said.
Government intervention also helped blunt the price increase for electricity. Without the energy bill relief fund rebates, power prices would have been 18.6% higher in the quarter, Michelle Marquardt, ABS head of prices statistics, said.
The treasurer, Jim Chalmers, said the world was “inflicting price pressures on Australians and we are doing our best to ease them”.
“While inflation is moderating overall, it is proving to be more persistent around the world and more persistent here in Australia,” Chalmers said in a statement, adding that without the government policies to ease cost of living increases “CPI would have been around half a percentage point higher through the year”.
One positive sign was that prices for both goods and services are rising at a slower pace than a year ago. For services, it was the first time annual inflation had dropped since the December quarter of 2021.
“The main reasons for the lower annual inflation are price falls for holiday travel and accommodation and a decrease in the costs for childcare due to changes in the Child Care Subsidy,” the ABS said.
Fruit and vegetable prices were down 3.7%, helping trim the overall food price increase of 0.6% for the quarter. “Berries, grapes, and salad vegetables such as tomatoes, broccoli and capsicums drove the fall,” Marquardt said.
David Bassanese, chief economist at Betashares, said a November RBA rate rise was now “quite likely”.
“Given the 1.2% gain in the trimmed mean CPI, it would now take an unlikely small 0.6% increase in [that measure] in the December quarter for the RBA’s current 4% December quarter expectation … to be realised,” he said.
The RBA’s updated quarterly economic forecasts will released on 10 November and will ready in time for the board rates meeting three days earlier.
