CPI figures fuel rate hike fears

A 1.2 per cent quarter-on-quarter increase in consumer price index data revealed today has fueled predictions of a Reserve Bank cash rate hike in November.

The September quarter increase marked an acceleration in the rate of inflation on a quarterly basis, following a 0.8 per cent rise in the June quarter.

It was driven by a 7.2 per cent increase in the price of fuel, a 2.2 per cent increase in rents, a 1.3 per cent increase prices paid for new dwellings and a 4.2 per cent jump in electricity prices.

Australian Bureau of Statistics head of prices statistics Michelle Marquardt said there were some areas where prices fell.

“While prices continued to rise for most goods and services, there were some offsetting falls this quarter including for child care, vegetables, and domestic holiday travel and accommodation,” she said.

Treasurer Jim Chalmers said the rate of inflation had moderated on an annual basis to 5.4 per cent from six per cent the previous quarter.

“While inflation is moderating overall, it is proving to be more persistent around the world and more persistent here in Australia,” he said.

“The result is broadly in line with market expectations and consistent with Treasury forecasts.”

But the CPI increase has fueled speculation of a cash rate increase in November, with experts from CommSec Economics and HSBC both predicting a 25 basis point rise to 4.35 per cent at the Reserve Bank’s next meeting.

“The RBA has a hiking bias. And last night RBA governor Bullock stated ‘the board will not hesitate to raise the cash rate further if there is a material upward revision to the outlook for inflation,” CommSec head of Australian economics Gareth Aird and economist Stephen Wu wrote in an update.

“We are not sure what constitutes a ‘material upward revision to the RBA’s inflation forecasts. But we consider the lift in underlying inflation across Q3 2023 to be sufficiently strong to the RBA to act on their hiking bias at the upcoming board meeting.”

That view was shared by HSBC chief economist Australia New Zealand and global commodities Paul Bloxham, who said inflation was higher than the RBA was forecasting.

“Inflation is falling, but is still too high and declining only slowly,” he said.

“Most importantly, it appears to be falling at a pace that is slower than the RBA had expected.”

The nation’s cash rate has remained steady at 4.1 per cent since June, following a run of 12 increases across 13 meetings from May 2022.

“The recent data are consistent with inflation returning to the 2-3 per cent target range over the forecast period and with output and employment continuing to grow,” RBA governor Michele Bullock said in the October monetary policy decision.

Ms Bullock also said further monetary policy tightening may be required to keep inflation to target within a reasonable timeframe.

Indeed APAC economist Callam Pickering labelled today’s figures ugly in the context of RBA’s previous commentary.

“If the RBA has to revise their inflation forecast upward, from an already high level, then there is a clear justification to hike rates,” he said.

“However, that needs to be balanced against the clear evidence that tighter monetary policy has had a huge impact on consumer behaviour and further tightening increases the risk of recession or severe downturn.

“What is clear though is that the risk of a rate hike has increased with these higher than anticipated inflation figures.

“Last week it seemed unlikely that we’d see any further movement from the RBA this year, whereas now another rate hike wouldn’t be terribly surprising.”

The RBA’s next monetary policy meeting takes place on Melbourne Cup day – Tuesday, November 7.