Aussie mortgage holders could be staring down the barrel of more rate pain after inflation rose again.
Australian Bureau of Statistics figures released on Wednesday show headline inflation came in at 4.3 per cent for the 12 months until September. It was 4.0 per cent in August.
The all-important trimmed mean inflation rate – which cuts the top and bottom 15 per cent of items – came in at 3.6 per cent in September.
Both figures were above the Reserve Bank’s target of 2-3 per cent inflation.
RBA governor Michele Bullock gave a grim warning ahead of next week’s interest rate meeting straight after Wednesday’s inflation data print.
“What we have evidence on is on inflation and the evidence there is it is far too high,” she told a senate estimates hearing.
Cup Day rate rise predictions up after inflation print
Expectations of a Melbourne Cup day rate rise soared to 79 per cent from 66 per cent after the ABS release and most economists said it would be hard for the RBA to keep the official cash rate on hold.
“This is an ugly number for the RBA and significantly strengthens the case for another rate hike next week,” Global X ETF senior investment strategist Marc Jocum said.
Commonwealth Bank head of Australian economics Belinda Allen is one of the economists who now predicts the RBA will have to lift rates.
“We now expect the RBA to hike the cash rate by 25 basis points to 4.85 per cent. There are no guarantees it will be unanimous given the back to back hikes,” Ms Allen said.
“The key question is whether four hikes this year is enough. Recent RBA communications have been hawkish and suggests the answer is no.”
She said inflation came in hotter than the market was expecting but in line with her bank’s forecast.
“The September quarter CPI print affirmed our view that a rate hike is on the cards next week,” she said.
This is the final inflation figure ahead of the RBA’s critical Melbourne Cup day meeting next week.
Kochie says rate rise may not be a Cup Day sure bet
Compare the Market economics director David Koch said the CPI data showed inflation was
continuing to head “in the wrong direction, adding “the devil or, in this case, the angel may be in the detail”.
“Headline inflation is clearly troubling and if you look at the driving forces, there are several factors at play,” Mr Koch said.
“Fuel remains one of the biggest headaches, with the fuel excise relief having rolled off as oil prices surged.”
But he said trimmed mean inflation was holding steady in a cautiously good sign.
“Last week I said 3.6 per cent was the magic number for trimmed mean inflation,” Mr Koch said.
“If it came in any higher, I would say that a hike was almost a certainty.
“At 3.6 per cent we’re still in a bit of a grey area ahead of the RBA’s November meeting, and the Reserve Bank could decide to watch and wait given the equally concerning rise in unemployment.
“Regardless, today’s release shows we’re definitely not in the clear, and we probably need to pull out all the stops to get it under control.”
Chalmers blames war again, opposition blames government spending
Treasurer Jim Chalmers again said higher oil prices caused by the ongoing US-Iran war were “driving higher inflation around the world”.
“Today’s figures confirm we are not immune from that,” Mr Chalmers said.
“From an economic point of view, the conflict can’t end soon enough.
“The numbers in today’s data are still too high.”
Shadow treasurer Tim Wilson again blamed the government, saying Mr Chalmers had “a spending addiction”.
“That’s why interest rates keep going up,” he told News24.
“Until you contain government spending, Australians will pay more on their mortgages and go to the supermarket and pay more and get less.”
Mr Chalmers said the government would release a savings package in December’s budget update.
But he has also vowed to help Australians with cost-of-living pressures.
We recognise people are under pressure and that’s why we are rolling out responsible cost of living relief like cutting income taxes again and boosting bulk billing.
“We are playing our part in the fight against inflation by findings savings,” Mr Chalmers said.
“We’ve already found almost $180bn in savings since coming to government – including record savings of more than $60bn in this year’s budget.
“There will be more in the mid-year update later this year.”
Labor grilled on ‘out-of-control spending’
Anthony Albanese stressed his government’s cost-of-living relief as he defended Wednesday’s figures in parliamentary question time.
Angus Taylor kicked off questions, putting to the Prime Minister that the country was bracing for “a 17th interest rate increase under Labor”.
“Will the Prime Minister acknowledge reality, accept his Treasurer was wrong, and admit Labor’s out–of–control spending is forcing families and small businesses to pay more for everything?” the Opposition Leader asked.
Mr Albanese conceded the numbers “reflect what many Australians are feeling”.
“Every day they experience the impact of the cost of living and we understand that puts people under pressure,” he said.
“Just like in countries right around the world, the challenges we face in our economy are serious.
“The reality is, they’re not going to be solved overnight.”
The Prime Minister said his government was trying to balance “sensible savings” while also taking pressure off households.
He said cost-of-living measures were aimed at making “an immediate difference” while building “the longer term strength of economy”.
RBA asked if this is ‘central bankers’ nightmare’ at senate estimates
RBA deputy governor Andrew Hauser downplayed previous remarks about rising rates and expectations that inflation staying higher would be “a central bank’s nightmare”.
Mr Hauser said Wednesday’s inflation figures were broadly in line with market expectations and the central bank’s own forecasts.
“We are watching that issue really closely but it is a particular risk,” he told the senate committee in response to a question from Deputy Liberal leader Jane Hume.
“To your point these are too high, we’ve said this repeatedly and I’m sure we will say that again today.”
The RBA targets an inflation rate of between 2 to 3 per cent a year, with a number above this target increasing the likelihood of another interest rate hike.
So far in its fight against inflation, the central bank has lifted the cash rate four times by a total of 100 basis points this year.
Prior to Wednesday’s figures, markets expected the trimmed mean inflation rate to stay at 3.6 per cent.
Expectations of rate hike increase after inflation data
Prior to Wednesday’s figures money markets were pricing in a roughly 66 per cent chance that the RBA would lift rates to 4.85 per cent on Melbourne Cup day.
If this rate hike passed through it would take the cash rate to the highest level since the global financial crisis in 2008.
BDO chief economist Anders Magnusson said rising underlying inflation made November’s rate hike increasingly difficult to avoid.
“The important signal in today’s figures is therefore not simply the high headline CPI result. It is that underlying inflation remains too high,” he said.
“That makes it increasingly difficult for the RBA to treat external inflation pressures as something it can simply look through.”
He said the weakening labour market and subdued economic growth would make another rate increase “tougher for households and businesses”.
“However, allowing inflation to remain persistently above target risks lifting inflation expectations and requiring an even larger adjustment later.”
Mr Jocum said Wednesday’s “ugly number” ramped up the odds of further interest rate pain for households.
“Inflation is becoming the unwanted guest that refuses to leave the party, and today’s hotter-than-expected numbers suggest the RBA may have to reach for the rate-hiking hammer to finally show it the door,” he said.
“The RBA is under mounting pressure and facing a credibility test with inflation above its own forecasts and headline inflation accelerating further.
“After four rate hikes, the latest surprise raises questions about whether monetary policy has done enough.”
Deloitte Access Economics partner Stephen Smith said the best bet on Melbourne Cup Day was another interest rate hike.
“Wednesday’s figures reinforce the concerns the Reserve Bank has expressed in recent weeks,” he said.
“Progress in reducing inflation has stalled, and the longer that persists, the greater the risk that businesses and households begin to treat above-target inflation as normal.”
Mr Smith said while Deloitte was forecasting just one further interest rate hike, they did not predict interest rates would come back down anytime soon.
He said there needed to be a more durable improvement in the inflation picture before the central bank was prepared to lower rates.
“Lower energy costs would ease the immediate pressure,” Mr Smith said.
“Fiscal restraint would reduce the burden on monetary policy, while reforms that lift productivity would allow stronger growth without reigniting inflation.”
What contributed to September’s increase in inflation
Housing was the largest contribution to annual inflation up 5.2 per cent for the 12 months until September, due to rising costs for both new dwellings and electricity.
Transport was the second largest contributor as it jumped another 8.7 per cent in September, continuing its run higher due to the US- Iran war.
Rachael McCririck, ABS head of price statistics, said housing was the largest contributor to annual inflation in September, rising by 5.2 per cent.
“Annual inflation of 5.2 per cent for housing reflected rising costs for both new dwellings and electricity,” she said.
“New dwelling prices rose 4.7 per cent in the 12 months to September as builders passed on higher costs for materials and labour.
“This is down from 5.4 per cent in the 12 months to August.”
Transport was the second largest contributor to annual inflation in September, rising by 8.7 per cent, due to higher automotive fuel prices.
“On a monthly basis, automotive fuel prices rose 9.4 per cent in September, compared to a rise of 14.8 per cent in August. This was driven by higher world oil prices,” Ms McCririck said.
She said when prices for some items change significantly, measures such as the trimmed mean can give more insights into how underlying inflation is trending without the impact of temporary shocks.
In September, automotive fuel was excluded from the trimmed mean and this was a key driver of the difference between headline and trimmed mean inflation.
Read related topics:MelbourneReserve Bank