\u201cReal wages are growing at their strongest rate in five years, inflation has a two in front of it and interest rates have been cut three times in the last six months.\u201d<\/p>\n
It was just last month that Jim Chalmers<\/a> kicked off his economic reform round table with that familiar spiel, ticking off the economy\u2019s happy progress<\/a> over recent years.<\/p>\n Just five weeks later, one of those things is no longer true: inflation now has a three in front of it. ABS figures released on Wednesday showed consumer price growth accelerated to 3% in the year to August, extending a swift rise from 1.9% in June.<\/p>\n That\u2019s at the top of the Reserve Bank of Australia\u2019s<\/a> (RBA) 2% to 3% target range, and moving in the wrong direction after charting a steady path lower since the peaks of 2022.<\/p>\n Sign up: AU Breaking News email<\/a><\/p>\n Nobody wanted to say \u201cmission accomplished\u201d on inflation \u2013 certainly not Chalmers. But he, like most of us, was surely thinking it.<\/p>\n But how worried should we be? Is the inflation dragon stirring again, just as the green shoots are starting to emerge from the scorched earth it left behind?<\/p>\n There are reasons to relax. The \u201cheadline\u201d inflation figure is being buffeted by one-offs \u2013 not least the surge in power prices compared to a year ago as electricity bill subsidies expire.<\/p>\n The monthly inflation numbers also offer only a partial picture.<\/p>\n The RBA\u2019s chief economist, Sarah Hunter, told a parliamentary committee on Monday that the monthly consumer price figures were unreliable and that the central bank had expected the end of electricity subsidies would push the headline number back to 3% in early 2026.<\/p>\n Economists, however, have been shaken by this week\u2019s data. Barrenjoey\u2019s head of economic forecasting, Johnathan McMenamin, reckons Wednesday\u2019s release represents \u201cone of the worst-case scenarios for the inflation data\u201d.<\/p>\n Like other analysts, McMenamin points to persistently strong price increases in services, like hairdressing, eating out, takeaway and household services.<\/p>\n Construction costs are also coming back and rent inflation has stopped slowing.<\/p>\n \u201cThis inflation bumpiness tells us maybe the speed limit of the economy is lower than we thought,\u201d McMenamin says \u2013 by which he means it doesn\u2019t take much of a lift in activity to stir up inflation again.<\/p>\n To be clear: nobody is talking about a rate hike<\/a>. More persistent inflation means that instead of a rate cut in November, we may not get a reduction until closer to mid-2026.<\/p>\n \u201cWe\u2019ve really pushed out the expectation for rate cuts until later in the first half of next year, potentially in May,\u201d McMenamin says.<\/p>\n skip past newsletter promotion<\/a><\/p>\n Sign up to Breaking News Australia<\/p>\n Get the most important news as it breaks<\/p>\n Privacy Notice: Newsletters may contain information about charities, online ads, and content funded by outside parties. If you do not have an account, we will create a guest account for you on theguardian.com<\/a> to send you this newsletter. You can complete full registration at any time. For more information about how we use your data see our Privacy Policy<\/a>. We use Google reCaptcha to protect our website and the Google Privacy Policy<\/a> and Terms of Service<\/a> apply.<\/p>\n after newsletter promotion<\/p>\n If the RBA feels it needs to sit tight, rather than cut, then that will remove a tailwind for the economy and could dent our willingness to spend.<\/p>\n \u201cIt could challenge the consumer bounce-back, it may challenge people\u2019s confidence, and it will probably challenge the rebound in house price momentum.\u201d<\/p>\n Jonathan Kearns, the chief economist at Challenger and a former senior RBA official, says it is striking how many analysts have flipped their rate calls and now predict the RBA to stay on hold until 2026.<\/p>\n Not only have economists delayed the next RBA cut, they also think rates won\u2019t fall as far.<\/p>\n \u201cClearly, inflation is a little bit stronger than we were expecting; it is a bit more persistent,\u201d Kearns says. \u201cIt indicates the RBA is going to be very cautious and it may not cut on a quarterly cycle.\u201d<\/p>\n The next key test will be the inflation report for the September quarter, which doesn\u2019t drop until 29 October.<\/p>\n The RBA\u2019s monetary policy board meets on Monday and its governor, Michele Bullock, will front the media on Tuesday afternoon.<\/p>\n Nobody expects a rate cut next week but economists, journalists, politicians and everyday Australians will be listening carefully for what the central bank boss thinks will happen next.<\/p>\n","protected":false},"excerpt":{"rendered":"\u201cReal wages are growing at their strongest rate in five years, inflation has a two in front of…\n","protected":false},"author":2,"featured_media":43365,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[11],"tags":[138,219,111,139,69],"class_list":["post-43364","post","type-post","status-publish","format-standard","has-post-thumbnail","category-economy","tag-business","tag-economy","tag-new-zealand","tag-newzealand","tag-nz"],"_links":{"self":[{"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/posts\/43364","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/comments?post=43364"}],"version-history":[{"count":0,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/posts\/43364\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/media\/43365"}],"wp:attachment":[{"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/media?parent=43364"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/categories?post=43364"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/tags?post=43364"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}