Australia’s inflation rate accelerated in the September quarter as energy prices soared, heaping pressure on households and businesses and ensuring more interest rate rises to come.
The consumer prices index (CPI) has risen 7.3% over the past year and increased by 1.8% in the July to September period, the Australian Bureau of Statistics said on Wednesday. Economists had predicted annual CPI would quicken to 7% from the 6.1% pace reported in the previous quarter.
The annual rate is the highest since June 1990, ABS data showed. At that time, the Reserve Bank of Australia’s cash rate was 15%-15.5%, compared with 2.6% now.
Tuesday’s federal budget tipped inflation to peak later this year at 7.75%. The RBA’s target is to bring inflation back within its 2%-3% range over time. The budget also predicted the RBA’s cash rate would peak at 3.35%.
High inflation around the world has prompted most central banks to raise interest rates, in the most coordinated run of monetary policy tightenings in decades.
The RBA became the first central bank of a rich nation to reduce the size of its rate rises when it lifted its cash rate by 25 basis points this month, snapping four consecutive rises of twice that amount. The September inflation numbers will likely foster expectations that the bank may lift the key rate higher for longer.
The trimmed mean inflation figure, which strips out more volatile price movements and which the RBA looks at closely, quickened to a 6.1% annual pace from 4.9% in the June quarter.
While borrowers might be redoing their sums today, shoppers are likely to be as well.
The costs for non-discretionary items rose at an annual pace of 8.4% in the September quarter – up from 7.6% in the June quarter – to what the ABS dubbed “a new high”. These are essential items that consumers typically struggle to avoid buying, such as fuel and food staples.
By contrast, discretionary items rose by a more modest 5.5% annual pace.
CPI increase by 1.8% in the September quarter alone, driven by a 10.9% rise in gas prices. The cost of building new dwellings increased by 3.7% in the quarter and furniture, up 6.6%, was another big contributor.
Gas prices are set differently in the country’s west, where the Western Australian government reserves 15% for domestic use, and the east, where global markets set the price. Since gas is often the swing price in the wholesale power market, high prices for the fossil fuel also send electricity bills higher.
The ABS said electricity prices rose 3.2% for the quarter, with subsidies such as WA’s $400 power credit and smaller offerings in Queensland and the ACT helping to blunt the increase.
“Excluding the effect of these schemes, electricity would have risen 15.6% in the quarter,” the ABS said.
The September CPI figures offer some clues about the federal budget forecasts, released on Tuesday, that projected power prices would rise 20% later this year and a further 30% next year.
The treasurer, Jim Chalmers, in Tuesday told reporters that power prices, in particular, were a major concern.
“I’m not going to pretend that we’re not worried about these electricity prices,” he told reporters, blaming the war in Ukraine for “playing havoc” with energy markets, along with what he called a decade of energy policy indecision.
“Any responsible government facing these kinds of price hikes … needs to consider a broader suite of regulatory interventions than they might have considered in years gone by.”
Sean Langcake, head of Macroeconomic Forecasting for BIS Oxford Economics, said food price inflation “was very sharp” at 3.3%.
“Flooding in key growing regions at the start of 2022 is still pushing prices for fresh produce higher, with more recent floods set to compound these pressures next quarter,” Langcake said.
“This has also pushed up restaurant and take-out meal prices, where higher wage costs are also contributing to inflation.”
The ANZ, meanwhile, has become one of the first banks to lift its expectations of how high the RBA will raise its cash rate to quell inflation in light of the CPI data. The bank expects the RBA will lift the cash rate to 3.85%, up 25bp on its previous “terminal” rate.
“Underlying and non-tradables inflation gained momentum in Q3,” ANZ said. “These broad-based, domestically driven inflationary pressures are persistent and harder for the RBA to rein in, particularly given that the overall economy is in good health with solid household spending, strong business conditions and a substantial volume of unfilled labour demand.”