The annual Consumer Price Index has clocked in at 5.4 per cent for the September quarter, fuelling the possibility of another rate hike as soon as Tuesday 7 November.
As a result, two of the big four bank economic teams – CBA and ANZ – have now said they expect the RBA will increase the cash rate by 0.25 percentage points at its next meeting.
These revisions come on the back of the higher than expected inflation figures and a speech from Governor Bullock who said: “the Board will not hesitate to raise the cash rate further if there is a material upward revision to the outlook for inflation”.
Now, Australia’s major banks expect the RBA to increase the cash rate in November, with NAB already forecasting a hike.
|CBA||Hike to 4.35%|
|Westpac||Hike to 4.35%|
|NAB||Hike to 4.35%|
|ANZ||Hike to 4.35%|
While the majority of economists now view another rate increase as almost certain, Treasurer Jim Chalmers downplayed the possibility the RBA board would be forced to raise the cash rate to 4.35 per cent from 4.1 per cent when it meets on November 7.
Dr Chalmers has resisted predictions from economists and investors that stronger-than-expected inflation data will force the Reserve Bank to raise the cash rate up to two more times before Christmas.
Dr Chalmers said the acceleration of quarterly inflation to 1.2 per cent in the three months to September from 0.8 per cent in June due to surging petrol prices and rents did not amount to a “material change in the inflation outlook”.
“The Reserve Bank looks for material changes in the inflation outlook,” Dr Chalmers said.
“[The RBA] will obviously assess these numbers in their own way, but what we’ve seen today is consistent with our expectations. It doesn’t materially change the inflation outlook going forward.”
“CPI rose 1.2 per cent in the September quarter, higher than the 0.8 per cent rise in the June 2023 quarter.
The rise this quarter however continued to be lower than those seen throughout 2022.
While prices continued to rise for most goods and services, there were some offsetting falls this quarter including for child care, vegetables, and domestic holiday travel and accommodation.”
The most significant contributors to the rise in the September quarter were:
- automotive fuel (+7.2 per cent),
- rents (+2.2 per cent),
- new dwellings purchased by owner-occupiers (+1.3 per cent) and
- electricity (+4.2 per cent).
Automotive fuel rose 7.2 per cent after two-quarters of price falls.
This is the largest quarterly rise in fuel prices since March 2022 and is mainly caused by higher global oil prices.
Rents rose 2.2 per cent, following a 2.5 per cent rise in the June quarter with rental price growth for flats continuing to outpace price growth for houses.
The increase in rents this quarter was moderated by changes to Commonwealth Rent Assistance.
From 20 September 2023, the maximum rate available for Rent Assistance increased by 15 per cent on top of the CPI indexation that applies twice a year.
Ms Marquardt commented:
“This is the largest increase in Commonwealth Rent Assistance for 30 years and, while the increase applied for only part of the quarter, it reduced the overall increase in rents by 0.3 percentage points."
ABS data also highlighted that prices for new dwellings rose 1.3 per cent this quarter, though they continue to ease from rises seen in 2022 due to subdued new demand and easing material costs.
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Electricity rose 4.2 per cent reflecting higher wholesale prices being passed on to customers from annual price reviews in July.
She further commented:
“Electricity prices were partially offset by the Energy Bill Relief Fund rebates, which were introduced this quarter.
These rebates reduced electricity bills for all households in Brisbane and Perth and for concession households in the remaining states and territories.
Excluding the rebates, electricity prices would have increased 18.6 per cent in the September quarter."
Meanwhile, food prices (+0.6 per cent) also rose this quarter, with the rise being the softest quarterly rise since September 2021.
The rise was driven by meals out and takeaway foods (+2.1 per cent).
Partially offsetting the quarterly rise was price falls for fruit and vegetables (-3.7 per cent)
On the other hand, child care fell 13.2 per cent and was the largest contributing fall this quarter.
Changes to the Child Care Subsidy raised the amount of subsidy received for over a million families and came into effect on 10 July 2023.
Ms Marquardt explained:
“Fruit and vegetable prices fell this quarter due to favourable growing conditions. Berries, grapes, and salad vegetables such as tomatoes, broccoli and capsicums drove the fall.
This change reduced out of pocket costs for households, more than offsetting child care fee increases this quarter. Without the changes to the Subsidy, child care would have increased 6.7 per cent."
Annually, the CPI rose 5.4 per cent, with new dwellings (+5.2 per cent), rents (+7.6 per cent), electricity (+14.5 per cent) and automotive fuel (+7.9 per cent) the most significant contributors.
“September quarter’s annual increase of 5.4 per cent is lower than the 6.0 per cent annual rise in the June 2023 quarter. This marks the third quarter in a row of lower annual inflation, down from the peak of 7.8 per cent in the December 2022 quarter,” Ms Marquardt said.
Underlying inflation measures reduce the impact of irregular or temporary price changes in the CPI.
Annual trimmed mean inflation was 5.2 per cent, down from 5.9 per cent in the June quarter.
The ABS also released the monthly CPI indicator for September, which rose 5.6 per cent in the 12 months to September.
Ms Marquardt noted:
“The most significant contributors to the rise were new dwellings (+4.9 per cent), automotive fuel (+19.7 per cent), rents (+7.6 per cent) and tobacco (+7.5 per cent).
This is the second consecutive rise in the annual movement up from 5.2 per cent in August and 4.9 per cent in July.
While many industries price increases are slowing, automotive fuel has had large annual increases in the last two months, which has been driving the movement higher."