Because of the increased cost of gasoline, the annual rate of inflation in Australia accelerated during the third quarter of 2018, putting additional pressure on RBA to raise interest rates once more.
The headline consumer price index increased by 1.2% from July to September, the Australian Bureau of Statistics announced on Wednesday. This is an increase from the 0.8% increase seen in the June quarter. The quarterly rate was anticipated to come in at 1.1% by economic analysts.
In comparison to the previous quarter’s reading of 6.0%, the headline CPI came in at 5.4% on an annual basis. Economists had anticipated that the annual rate would come in at 5.3%, continuing the downward trend that began in the December quarter when it reached a top of 7.8%.
Only for the month of September, overall consumer prices were 5.6% higher than they were a year ago, marking an acceleration from the record 4.9% increase seen in consumer prices in July and the 5.2% increase seen in consumer prices in August.
Two of the three major banks, ANZ and CBA, had projected that there would be no more increases in interest rates; however, they have now changed their minds and now anticipate that the RBA would raise the cash rate by 25 basis points the following month.
Before today, only NAB had forecasted a rate increase for November, and Westpac had forecasted that rates had already reached their maximum. The NAB stated that there was now a possibility of an additional rate increase.
Since the beginning of the year, the RBA has maintained the benchmark interest rate at its previous level of 4.1%. Prior to the release of today’s inflation statistics, the financial markets had priced in a about one-in-three possibility that the central bank would increase the cash rate to 4.35% at the meeting on November 7.
Michele Bullock gave her first speech as RBA governor on Tuesday night in Sydney. In it, she stated that “the [RBA] board will not hesitate to raise the cash rate further if there is a material upward revision to the outlook for inflation.” This was Bullock’s first public appearance since being appointed governor of the RBA.
The RBA constantly monitors a trimmed mean inflation measure that filters out the more volatile price movers. This measure increased from 0.9% in the June quarter to 1.2% in the September quarter. A quarterly increase of 1.1% was anticipated by economic analysts.
Although it slowed from the 5.9% rate seen in the period from April to June, the year-over-year increase was 5.2%, which is still a significant distance away from the range of 2% to 3% that the RBA aims for over time.
As a result of the news, investors increased their wagers that the central bank will raise interest rates again, which led to a rise in the value of the Australian dollar. It was fetching slightly over 63.9 US cents, which is an increase from the recent trading level of approximately 63.6 US cents.
Shares, which have a tendency to decrease when it is anticipated that rising borrowing costs will have a negative impact on firm profitability, reversed their early gains for the day of approximately 0.3% to be down by that much in early afternoon trade.
According to Australian Bureau of Statistics, the most notable price increases for the quarter were a 7.2% increase in the cost of motor fuel, a 2.2% increase in rent, a 4.2% increase in the cost of electricity, and a 1.3% increase in the cost of purchasing a new home. The most significant increase in fuel prices has occurred since the March quarter of 2022, which coincides with the beginning of Russia’s invasion of Ukraine.
The rise in rents, which impact approximately one in every three homes, was lower than the increase of 2.5% that occurred during the June quarter. According to the ABS, the amount of the increase was moderated by 0.3 percentage points thanks to the highest increase in the Commonwealth rent assistance in 30 years. This helped mitigate the extent of the rise.
The action of the government also helped to slow the rate of increase in the cost of electricity. According to Michelle Marquardt, head of prices data for the ABS, power costs would have been 18.6 percentage points higher in the quarter if it weren’t for the energy bill relief fund refunds.
Jim Chalmers, the nation’s treasurer, stated that the world was “inflicting price pressures on Australians and we are doing our best to ease them.”
Chalmers said in a statement that while inflation is moderating overall, it is proving to be more persistent around the world and more persistent here in Australia. He added that if the government had not implemented policies to ease increases in the cost of living, “CPI would have been around half a percentage point higher through the year.”
The fact that prices for both products and services are climbing at a pace that is slower than it was a year ago is one indication that the economy is heading in the right direction. It was the first time that annual inflation has decreased for services since the last quarter of 2021, which was the year 2021.
“The main reasons for the lower annual inflation are price falls for holiday travel and accommodation and a decrease in the costs for child-care due to changes in the Child Care Subsidy,” the Australian Bureau of Statistics (ABS) stated. “The main reason for the lower annual inflation is a decrease in fuel prices,” the ABS added.
The price of fruits and vegetables decreased by 3.7%, which contributed to the total 0.6% decrease in price growth for food during the quarter. “Berries, grapes, and salad vegetables such as tomatoes, broccoli, and capsicums drove the fall,” added Marquardt.
“Given the 1.2% increase in the trimmed mean CPI, it would now take an unlikely small 0.6% increase in [that measure] in the December quarter,” he added. “This would be necessary in order for the RBA’s current 4% December quarter expectation… to be realized.”
The RBA’s latest quarterly economic predictions will released on 10 November and will ready in time for the board rates meeting three days earlier.