The rate went from 6.1% to 7.3% per year.
Australia’s inflation jumped to a 32-year high in the last quarter as the cost of building homes and gas went up. This was a surprise that made people want the country’s central bank to start raising interest rates more quickly again.
On Wednesday, the Australian Bureau of Statistics (ABS) reported that the consumer price index (CPI) rose 1.8% in the September quarter. This was more than the 1.6% rise that the market had expected.
The annual rate went from 6.1% to 7.3%, which is the highest it has been since 1990 and almost three times as fast as wages grew.
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The trimmed mean, which is a closely watched measure of core inflation, also went up by 1.8% in the quarter. This brought the annual rate of inflation to 6.1%, which was again much higher than the predictions of 5.6%.
That would be bad news for the Reserve Bank of Australia (RBA), which thought that headline inflation would peak at 7.75% and core inflation would peak at 6.0% in the December quarter.
Instead, analysts were warning that both core and headline measures were likely to go up even more this quarter since the ABS’s new monthly CPI was going up faster in September.
As a result, CPI inflation will get close to 8% in the fourth quarter, “said Marcel Thieliant, a senior economist at Capital Economics.
“The higher-than-expected rise in consumer prices fits with our prediction that the RBA will raise interest rates more quickly than most people expect.”
ANZ raised its prediction for the cash rate’s peak, from 3.6% to 3.85% in May of next year.
It is especially bad timing for the RBA because it surprised many people this month when, after four moves of 50 basis points each, it moved rates up by only a quarter point.
Since May, rates have already gone up by a huge 250 basis points, and the RBA wanted to move more slowly to see how the drastic tightening was affecting spending by consumers.
Investors now think that the central bank might have to change its mind, maybe not at its meeting next week but in December.
Futures still show that rates will go up by a quarter point on November 1 to 2.85%, but there is now a chance that rates will go up by a half point in December and reach their highest point around 4.20% in July.
This week, both the European Central Bank and the Bank of Canada are expected to raise rates by 75 basis points. On November 2, the Federal Reserve should do the same thing.
Even though there were calls for more help with the cost of living because prices are going up, Australia’s Labor government gave in to inflation fears this week and cut spending in its 2022/23 Budget.
“Whether it’s food, electricity, or rent, inflation is the biggest problem for everyone. The data led Treasurer Jim Chalmers to say, “Inflation is the dragon we need to kill.”
Related: The dollar falls as more people expect the Fed to be less hawkish; Australian stocks rise following CPI.
People also worry that the recent flooding in eastern Australia will drive food prices up even more. The supermarket chain Coles (COL.AX) has warned of a drop in sales of fresh food, where prices are already up 8.8% from a year ago.
The CPI report released on Wednesday showed that food prices were already going up at a rate of 9.0% per year, with a 3.2% jump in the third quarter alone.
The ABS reported that the annual inflation rate for basic goods and services jumped to 8.4% in the September quarter. This shows how much cost-of-living pressures are getting worse.
