Inflation rises to 4.3%, increasing RBA rate hike pressure

Australia’s annual inflation rate increased to 4.3% in September, up from 4.0% in August, intensifying pressure on the Reserve Bank of Australia (RBA) ahead of its interest rate decision.Expectations of a rate rise next week, possibly the fifth this year, surged to 80% post-inflation report.

Key contributors to the inflation rise included petrol and holiday travel costs, while the RBA focuses on underlying inflation metrics.

The quarterly trimmed mean, the bank’s preferred inflation measure, rose to 1.0%, an increase from 0.8% in June.

Inflation concerns

The consumer price index (CPI) rose 0.6% in September, primarily driven by a 9.4% increase in automotive fuel prices due to rising global oil prices, which are now 23.6% higher year-on-year.

Domestic holiday travel and accommodation costs spiked by 8.0% in September as families took advantage of school holidays.

Conversely, housing inflation eased to 5.2% annually, down from 5.7% in August, with new dwelling prices remaining stable.

Electricity prices stayed 12.8% higher year-on-year, largely due to expired federal government rebates.

Increased petrol prices are straining household budgets and complicating delivery costs for businesses.

A rate rise may not increase oil supply but could reduce overall spending and hinder businesses’ ability to pass on costs.

The underlying “trimmed mean” measure, which excludes extreme price changes, revealed a quarterly inflation rate of 1.0%, aligning with economists’ forecasts.

Sustaining this quarterly rate could exceed the RBA’s annual target of 2–3%, signalling potential future inflation concerns.

The annual underlying inflation rate climbed to 3.7%, slightly above the 3.6% forecast in a Bloomberg survey.

The recent ban on card payment surcharges could further complicate inflation dynamics, as businesses may raise prices to offset costs.

The RBA has indicated that integrating card fees into final prices might raise the CPI by approximately 0.1%.

The inflation report pertains to September, preceding the surcharge rule change, making the impact on future prices uncertain.

These figures heighten the likelihood of a rate hike during the upcoming RBA meeting on November 3.

Deputy Governor Andrew Hauser noted a deteriorating inflation outlook, citing rising energy prices and supply constraints.

Assistant Governor Sarah Hunter highlighted demand exceeding supply, warning of potential embedded cost increases domestically.

With the cash rate currently at 4.60%, ongoing inflation pressures may prompt further action.

Careful consideration of inflation sources and the RBA’s updated forecasts will be crucial for interpreting future monetary policy.