Inflation jumps to 4.3%, adding to pressure for RBA rate rise next week
Financial markets put the chance of another rate hike next week at 80%.
Australia's inflation rate surged to 4.3% in September, prompting concerns for the Reserve Bank ahead of their upcoming interest rate decision. Market expectations have surged to 80% for another rate hike next week, being the fifth increase this year. Petrol and holiday costs were significant contributors to the inflation spike, but the underlying inflation measure showed a more concerning increase of 1.0%.
The Reserve Bank of Australia (RBA) is closely watching this metric, as it suggests a potential overheating of the economy. Factors driving the increase include higher fuel prices due to world oil price surges and increased domestic holiday travel and accommodation. While housing inflation eased, electricity prices remained 12.8% higher over the year.
The RBA's preferred measure of inflation, the trimmed mean, rose to 1.0%, exceeding economists' expectations. If this trend continues, it would be well above the RBA's 2-3% annual target. The RBA is concerned about the momentum in inflation, not just the current figures. Another factor to consider is the removal of card payment surcharges, which could lead to higher advertised prices.
While the inflation report covers September, the changes may have an impact on the November rate decision. The RBA's Deputy Governor and Assistant Governor have expressed concerns about energy prices, supply constraints, and overseas cost increases affecting domestic inflation. The cash rate is already at 4.60%, and further hikes could take time to curb spending.
Policymakers will weigh the inflation data against the benefits of continued tightening measures, as well as the improving unemployment rates.
Written by urgent.news from The Conversation AU's reporting — not their text. Machine-written — may contain errors; check the original before relying on it.
