Inflation rate gives the RBA a slam dunk to increase rates on Melbourne Cup Day 2023

According to Moody’s Analytics report on Australia Consumer Price Index the uptick in quarterly price growth will put pressure on the Reserve Bank Australia (RBA) to hike rates further when they meet next on 7 November, Melbourne Cup Day.

Aussie inflation isn’t playing ball, the Moody’s Analytics report outlines. Across the September quarter, underlying inflation rose for the first time on a quarter-on-quarter basis since September 2022. Fuel, rents and utilities remain the key culprits for much of the quarterly rise—but they’re not alone. Prices for insurance, communication, takeaway meals, alcohol and tobacco are all rising at a solid trot.

The higher-than-expected September inflation print likely seals the deal for a further rate hike in November. In her first speech as Governor delivered just last night, Michele Bullock noted “the Board will not hesitate to raise the cash rate further if there is a material upward revision to the outlook for inflation.”

A material upward revision is just what occurred in the latest data. The next rate decision will come just half an hour before the running of the Melbourne Cup. And while that will be the “race that stops the nation”, the RBA board will be hoping the preceding hike will be the “rate” that stops it too.

Still, we don’t expect there will be a need for a run of aggressive tightening. Instead, the expected hike in November will likely be enough to nudge demand closer back to the constrained supply. From there, an extended pause into next year is the most likely path.

Remember, a pause from the RBA isn’t akin to a cut. Household budgets will be under pressure as long as interest rates hold at elevated levels; that will keep spending tight and put downward pressure on inflation.

The Numbers give the game away

The monthly CPI indicator edged up 5.6% y/y in September, rising from 5.2% in August and 4.9% in July. Across the September quarter, inflation rose to 5.4% y/y, down from 6% in the June quarter.

In seasonally adjusted terms, prices rose 1% q/q, equalling the rise in June quarter. Trimmed mean inflation, which strips out volatile price movements, fell to 5.2% y/y in the September quarter, from 5.9% previously.

On a quarter-on-quarter basis, core prices rose 1.2% from 1% in the June quarter. Goods inflation continued to trend lower, falling to 4.9% y/y in the September quarter. This is down from 5.8% in the June quarter, 7.6% in the March quarter, 9.5% in the December quarter, and 9.6% in the quarter to September 2022.

Services recorded its first year-on-year retreat since December 2021, easing to 5.8% y/y from 6.3% in the June quarter. Prices for nondiscretionary goods and services rose 5.5% y/y in the September quarter, down from 6.1% previously. Discretionary price growth eased to 5% y/y from 5.9%.

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