Australia's Consumer Prices Exceed Expectations, Raising Speculation of Rate Hike

Sydney - In a surprising turn of events, Australia's consumer prices experienced a higher-than-expected increase in the third quarter. This development has intensified speculation that the Reserve Bank of Australia (RBA) may break its neutral stance and opt to raise interest rates at its upcoming meeting.

According to the Australian Bureau of Statistics, the consumer-price index rose by 1.2% in the quarter and 5.4% over the year. These figures not only exceeded market expectations but also surpassed economists' projections for core measures of inflation.

This data release follows RBA Governor Michele Bullock's recent warning that the central bank was ready to implement further policy tightening measures if inflation displayed signs of resurging momentum.

Bullock expressed caution, stating, "It is possible that inflation may take longer than initially predicted to reach target levels. Should there be a substantial upward revision to our inflation outlook, the board will not hesitate to increase the cash rate."

Since July, the RBA has maintained the official cash rate at 4.1%, marking an unprecedented period of stability after raising it twelve times from May 2022 onwards.

The third-quarter inflation data will serve as the foundation for reviewing the RBA's economic forecasts. These revised projections will significantly shape the decision-making process during the central bank's policy meeting scheduled for November 7th.

The RBA's Inflation Outlook for Late 2025

The Reserve Bank of Australia (RBA) has recently shared its inflation forecast, indicating that it may not reach the mid-point of its 2% to 3% inflation target until late 2025. This is a more cautious trajectory compared to other central banks, with the RBA aiming to sustain the recent improvements in the job market.

According to Stephen Miller, a market analyst at GSFM, the latest release of data confirms that the set benchmark has been exceeded. As a result, an interest rate increase next month is now considered highly likely.

Key contributors to the rise in Consumer Price Index (CPI) during the third quarter include higher prices for automotive fuel, rents, new dwellings, and electricity, as reported by the Australian Bureau of Statistics (ABS). Automotive fuel prices witnessed the largest quarterly increase of 7.2% since March 2022.

Rents saw a rise of 2.2%, following a 2.5% increase in the previous quarter. Rental prices for apartments continued to outpace those for houses, according to the ABS.

Reflecting higher wholesale prices, electricity prices rose by 4.2%, which was passed on to customers following annual price reviews in July.

However, there was some relief for consumers in terms of fruit and vegetable prices, which fell during the quarter due to favorable growing conditions. Additionally, childcare costs experienced a notable drop of 13.2%.