Australian inflation has surged to 4.3% over the year ending in September, prompting economists to anticipate that the Reserve Bank of Australia (RBA) will raise its cash rate to an 18-year high when the board meets next Tuesday. The Consumer Price Index (CPI) rose 4.3% in the 12 months to September, up from 4% in August, according to data released by the Australian Bureau of Statistics (ABS) on Wednesday, 28 October.
The monthly CPI climbed 0.8% in September, while the seasonally adjusted series posted a 0.6% rise. These movements highlight the challenge of bringing inflation back within the RBA’s 2% to 3% target range.
Financial markets responded by increasing expectations of another interest rate hike at the RBA’s November meeting.
Housing remained Australia’s largest contributor to annual inflation, with prices in the category rising 5.2% over the year. Transport was the second-largest contributor, recording an 8.7% annual increase driven by higher fuel prices. Automotive fuel prices rose 9.4% in September alone, following a 14.8% increase in August. The ABS attributed these increases to higher international oil prices.
Inflation varied regionally, with Hobart at 5.3% and Darwin at 5.2%, compared with 4.3% in Sydney and 4% in Melbourne.
Core price pressures also remain raised. Trimmed-mean inflation, a measure that strips out unusually large price swings, stood at 3.6% for September, up from a revised 3.5% in August. Quarterly data reinforced this picture: the trimmed-mean index rose 1% in the September quarter, while the headline CPI advanced 1.3% over the same period.
The latest statistics place the RBA in a difficult position. Higher interest rates could help restrain consumer spending and demand, reducing businesses’ ability to pass on price increases. However, further tightening would increase mortgage repayments and borrowing costs for households and businesses at a time when many are already under financial pressure.
AMP Capital economist My Bui wrote, “Australia’s August inflation report was marginally hotter than expected; but that’s already enough to lock in a hike from the RBA in next week’s meeting. There are a lot of different inflation measures, but the most important figures (aka the monthly and quarterly trimmed mean measures which take out volatile outliers) all accelerated versus prior readings, which will warrant continued hawkishness from the [RBA] Board.”
Treasurer Jim Chalmers has pointed to international pressures, including higher oil prices, as contributing to Australia’s inflation problems. The latest figures will intensify scrutiny of the government’s efforts to ease cost-of-living pressures.
Meanwhile, food and non-alcoholic beverage prices were up 3.2% over the year, and education costs climbed 4.7%.
