Australian inflation data over the three months to September 30 came in higher than expected and may prompt the Reserve Bank into a Melbourne Cup Day rate hike. The Australian Bureau of Statistics reported a 1.2% increase in consumer prices for the quarter, a notable uptick from 0.8% in the June quarter. Key contributors to this rise were surging petrol prices, which grew 7.2%, along with rents, new homes and electricity costs.
ABS head of prices statistics Michelle Marquardt indicated that the quarterly increase was more substantial than in June but less extreme than some of the fluctuations observed in 2022. The annual inflation rate stood at 5.4%, down from 6% in the June quarter but well below its peak of 7.8% for the December 2022 quarter.
RBA's next moves
The inflation data has prompted some economists to revisit their forecasts for the cash rate call for November. Commonwealth Bank, ANZ, and AMP are leaning towards a 25 basis-point hike.
EY chief economist Cherelle Murphy said that a November rate hike "looks all but guaranteed," especially considering that inflation is now out of line with RBA's August forecasts. This sentiment is aligned with the strong commentary from RBA Governor Michele Bullock, who asserted that the central bank would not hesitate to adjust interest rates in response to a significant upward shift in inflation expectations.
This latest inflation data could thus catalyse action from the RBA, which has maintained interest rates for the last four months. Financial markets and policymakers alike will be closely watching the RBA's next moves, especially on Melbourne Cup Day on November 7 when the cash rate call is due.
“Battle against inflation is not over”
Stock market analyst Megan Stals said in a note yesterday: “Today’s hotter than expected CPI read shows that the battle against inflation is not over, but the RBA’s next steps are not clear cut. Increased rates are likely to have limited impact on the biggest inflation drivers including fuel, rents and dwellings. Higher oil prices are a supply-side issue, high immigration and low housing supply are keeping property prices elevated, and landlords simply pass on the higher mortgage costs to renters, creating a negative feedback loop. Given this, it’s hard for investors to find a distinct direction, and it’s likely we’ll see the ASX 200 trade sideways in the coming months as we wait for more obvious signals.
“Utilities generally hold up well during periods of slow consumer spending, and although energy suppliers including AGL (ASX: AGL), Meridian (ASX: MEZ) and Origin (ASX: ORG) have all taken a hit today, the S&P/ASX 200 Utilities index is also up almost 30% over the past 12 months.
“On a more positive note, the potential for further rate increases has boosted the Aussie dollar, which could attract capital inflows and will improve conditions for firms depending on imports. This trend is supported by modest gains from the resources sector. A stronger Aussie dollar also works in favour of investors interested in the American stock market. While the U.S. has also seen significant volatility over recent months, strong earnings from the likes of Microsoft (NASDAQ:MSFT) and Netflix (NASDAQ:NFLX) means sentiment could begin to shift to the upside.”