Inflation in Australia accelerated in the September quarter as energy prices soared, putting more pressure on households and businesses and pushing interest rates higher.
The Consumer Price Index (CPI) rose 7.3% over the past year and increased 1.8% between July and September, the Australian Bureau of Statistics said on Wednesday. Economists had predicted that the annual CPI would accelerate to 7% from 6.1% in the previous quarter.
The annual rate is the highest since June 1990, ABS data showed. At the time, the Reserve Bank of Australia cash rate was 15%-15.5%, compared to 2.6% now.
Tuesday federal budget At the end of this year, inflation will reach a peak of 7.75%. The goal of the RBA is to return inflation within the range of 2-3% over time. The Budget also predicted that the RBA cash rate would peak at 3.35%.
High inflation around the world has prompted most central banks to raise interest rates as part of the most coordinated tightening of monetary policy in decades.
The RBA became the rich nation’s first central bank to cut the size of a rate hike when it raised its cash rate by 25 basis points this month, the fourth time in a row that it has doubled that rate. September’s inflation figures are likely to boost expectations that the bank may raise the key rate for longer.
The stripped-down average inflation figure, which excludes more volatile price movements and is closely watched by the RBA, accelerated to a 6.1% annual rate from 4.9% in the June quarter.
While borrowers can redo their sums today, buyers probably will too.
Spending on non-discretionary goods rose at an annual rate of 8.4% in the September quarter – up from 7.6% in the June quarter – to what the ABS called a “new high”. These are essential items that consumers typically struggle to purchase, such as fuel and food.
In contrast, discretionary goods grew at a more modest 5.5% annual rate.
The CPI increased by 1.8% only in the September quarter, driven by a 10.9% increase in gas prices. The cost of new home construction rose 3.7% in the quarter, while furniture rose 6.6%, another big contributor.
Gas prices are set differently in the west of the country, where the Western Australian government keeps 15% for domestic use, and in the east, where global markets set the price. Because the price of gas often fluctuates in the wholesale electricity market, high fossil fuel prices also increase electricity bills.
The ABS said electricity prices rose 3.2% in the quarter, with subsidies such as WA’s $400 electricity credit and smaller offers in Queensland and the ACT helping to blunt the rise.
“Excluding the effect of these schemes, electricity would have grown by 15.6% in the quarter,” the ABS said.
September’s CPI numbers offer some clues about the federal budget projections released on Tuesday, which forecast electricity prices to rise 20% at the end of this year and another 30% next year.
Treasurer Jim Chalmers told reporters on Tuesday that electricity prices, in particular, were a big concern.
“I’m not going to pretend we don’t care about these electricity prices,” he told reporters, blaming the war in Ukraine for “destroying” energy markets and what he called a decade of indecision on energy policy.
“Any responsible government faced with these price increases … should consider a broader range of regulatory interventions than they may have considered in years past.”
Sean Langkake, head of macroeconomic forecasting at BIS Oxford Economics, said food price growth “was very sharp” at 3.3%.
“Flooding in key growing regions in early 2022 continues to push up fresh produce prices, and recent flooding will add to that pressure next quarter,” said Langkeik.
“It has also pushed up restaurant and takeaway prices, where higher wage costs are also contributing to inflation.”
ANZ, meanwhile, was among the first banks to raise its expectations for how high the RBA would raise its cash rate to suppress inflation in light of the CPI data. The bank expects the RBA to raise the cash rate to 3.85%, which is 25 bp. above the previous “final” rate.
“Core and non-tradable inflation picked up in Q3,” ANZ said. “These broad domestically driven inflationary pressures are persistent and harder for the RBA to contain, particularly given that the economy is generally in good shape with strong household spending, good business conditions and strong unsatisfied demand for labor.”