• The CPI increased 1.8 percent in the September quarter.
• It exceeded market expectations of 1.6 percent.
• The annual rate increased sharply from 6.1 to 7.3 percent.

The price of gas and home construction drove Australian inflation to a 32-year high last quarter, a startling development that increased pressure on the country’s central bank to resume more aggressive rate hikes.

The consumer price index (CPI), according to data released by the Australian Bureau of Statistics (ABS) on Wednesday, increased 1.8 percent in the September quarter, exceeding market expectations of 1.6 percent.

The annual rate increased sharply from 6.1 to 7.3 percent, which is the highest level since 1990 and nearly three times faster than wage growth.

The trimmed mean, a frequently monitored indicator of core inflation, also increased 1.8 percent in the quarter, pushing the annual rate up to 6.1 percent and again exceeding expectations of 5.6 percent.

The Reserve Bank of Australia (RBA), which had predicted that core inflation would peak at 6% in the December quarter and CPI would peak at 7.75%, would not be happy to hear that.

Instead, economists were cautioning that, with the ABS’s new monthly CPI increasing in September, both core and headline inflation were guaranteed to surge considerably higher this quarter.

The end result, according to Capital Economics senior economist Marcel Thieliant, “is that CPI inflation will surpass 8% in Q4.”

The RBA will raise rates more aggressively than most anticipated, according to our projection, which is consistent with the stronger-than-expected increase in consumer prices.

It is particularly unfortunate for the RBA because, after four shifts of 50 basis points this month, it startled many by downshifting to a quarter-point rate hike.

The RBA wanted to increase rates more gradually to see how the sharp tightening was affecting consumer spending because rates have already increased by a whopping 250 basis points since May.

Investors were beginning to fear that the central bank could need to change its mind, possibly not at its policy meeting next week but later in December.

Futures still predict a quarter-point increase in rates on November 1 to 2.85 percent, but they now also predict a slight likelihood of a half-point increase in December and a peak of about 4.20 percent in July.

Rate increases of 75 basis points are anticipated from the Bank of Canada and the European Central Bank this week, and the US Federal Reserve should follow suit on November 2.

Despite appeals for additional cost-of-living assistance in the face of rising prices, Australia’s Labor government this week capitulated to inflation worries by restricting spending in its 2022–23 Budget.

There are concerns that the recent flooding in eastern Australia may cause food prices to increase even further. Coles, a retail operator, has warned of decreased volumes in fresh food, where prices are already 8.8% higher than they were a year ago.

According to the CPI report released on Wednesday, food costs have already increased by 9.0% annually, with a rise of 3.2% in just the third quarter.

The annual inflation rate for necessities increased to 8.4 percent in the third quarter of 2018, according to the ABS, underscoring the severity of pressures brought on by rising costs of living.

Also Read

UK inflation rises back to 10% as food costs skyrocket

Inflation returned to 10.1 percent on an annual basis from 9.9 percent...