Australia’s inflation rate rose more than expected in September, raising expectations of an interest rate hike next week.
The consumer price index rose to 0.8 per cent in the month, from 0.4 per cent in August, taking annual inflation to 4.3 per cent, up from 4 per cent a month earlier, the Australian Bureau of Statistics (ABS) said.
“Housing was the largest contributor to annual inflation in September, rising by 5.2 per cent,” ABS head of price statistics Rachael McCririck said.
Transport also drove annual inflation higher, largely due to higher fuel prices, which rose 9.4 per cent in September.
The annual trimmed mean, a measure of underlying inflation, also picked up to 3.6 per cent in September. The August trimmed mean was revised lower to 3.5 per cent.
The increase in underlying inflation was despite fuel prices being excluded from the trimmed mean due to their volatility.
Following the CPI release, market pricing for a November interest rate hike surged, putting the chance of a 0.25 per cent increase next week at about 85 per cent, according to Bloomberg data.
KPMG Australia chief economist Brendan Rynne described the inflation figures as “the last data point necessary for the RBA to increase the cash rate for a fifth time this year”.
“It is clear pricing pressures in the Australian economy are growing, not weakening, and the upswing in inflation is catching the market off guard,” Dr Rynne said.
Betshares chief economist David Bassanese said his base case was the RBA would hike rates next week but then leave them on hold in December in a pre-Christmas reprieve for households.
“The only argument against a rate hike next week is the fact the [RBA] pre-emptively raised rates in September, so may feel it has a little more time to assess economic developments and possibly re-visit the rate hike decision in December,” he said.
“Should rates need to rise even further next year, the risk of recession would no doubt intensify.”Inflation ‘too high’ says RBA
Top Reserve Bank officials appeared at a Senate estimates hearing as the data was released.
Why the RBA is so focused on inflation
Deputy governor Andrew Hauser said inflation was broadly in line with the central bank’s expectations, but was too high.
“We have said that repeatedly, and I’m sure that we will say that again today,” he said.
The RBA targets inflation between 2-3 per cent.
Last week, Mr Hauser had warned the inflation outlook looked “materially worse” than the RBA had forecast, raising the prospect of another interest rate hike next week.
“Today’s data will provide the rationale for acting on these recent tough words next week, and unless we start to see a swing down in inflation over the coming months, then it looks more likely than not another rate rise will be coming at the start of 2027,” Dr Rynne said.
The ABS also calculated quarterly inflation figures. The trimmed mean rose 1 per cent in the September quarter.
“Back in August, the RBA forecast a trimmed mean quarterly gain of 0.8 per cent in the September quarter — so today’s 1.0 per cent quarterly gain is confirmation that those inflation risks have indeed materialised,” Mr Bassanese said.
“Higher underlying inflation reflects several factors, such as the pass through of higher oil prices into wider array of goods and service prices along with still sticky local service sector inflation.”
The RBA’s interest rate-setting board will kick off its meeting on Monday and hand down its decision on Tuesday afternoon.
It will also release its updated economic forecasts, including for inflation.