Australian Consumer Inflation Beats Expectations, Raising Hopes for Interest Rate Hike
Australian Consumer Inflation Exceeds Expectations
Australian consumer inflation has surpassed expectations in the third quarter, driven by a surge in oil prices that has led to higher fuel costs. This development has raised hopes that the Reserve Bank of Australia (RBA) will consider increasing interest rates.
Strong Growth in CPI Inflation
The Australian Bureau of Statistics (ABS) reported that Consumer Price Index (CPI) inflation grew by 1.2% in the third quarter, surpassing the estimated 1.1% and the previous quarter’s growth of 0.8%. On a year-on-year basis, CPI inflation stood at 5.4% in the third quarter, higher than the expected 5.3% and the second quarter’s reading of 6%.
September CPI Inflation Exceeds Expectations
In September, the monthly CPI inflation rate rose to 5.6%, surpassing the estimated 5.3% and accelerating from the 5.2% recorded in August.
Fuel Costs Drive Inflation Increase
The major contributor to the rise in inflation was fuel costs, which saw a significant increase due to the spike in global oil prices during the quarter. Automotive fuel costs rose by 7.2% in the third quarter.
Steady Growth in Dwelling and Electricity Costs
In addition to fuel costs, dwelling and electricity costs also experienced steady growth. However, food costs appeared to have stabilized after a series of consecutive quarterly gains.
Inflation Above RBA’s Target
The reading of 5.4% inflation in the third quarter is comfortably above the RBA’s annual target of 2%. The central bank expects inflation to cool substantially by late-2025.
RBA Considers Future Rate Hikes
Although the RBA has maintained interest rates since May, it has indicated the possibility of future rate hikes, especially if the inflation outlook continues to point upwards.
Risks Related to Inflation
RBA Governor Michele Bullock recently warned about the risks associated with persistent inflation and suggested that further interest rate increases may be necessary to control high price pressures.
Market Reaction
Following the release of the inflation data, the Australian dollar strengthened by 0.4%, indicating that traders were pricing in a higher likelihood of an upcoming interest rate hike.
RBA’s Efforts to Curb Inflation
The RBA has already raised interest rates by 400 basis points since May 2022, which has helped to curb overheated inflation to some extent. However, challenges such as a tight job market and disruptions in global commodity prices have hindered the RBA’s efforts to swiftly control inflation.
Upcoming RBA Meeting
The RBA is scheduled to meet in early-November to discuss further monetary policy decisions.
