Australian Inflation Rises to 4.3% in September, Bringing Rate Hikes Back Into Focus
Key Facts
Annual inflation in Australia rose to 4.3% in September, from 4.0% in August, after the consumer price index increased 0.8% during the month, according to figures reported by ABC News, citing the Australian Bureau of Statistics. The data showed that pressure was not limited to headline inflation, with the annual trimmed mean rising to 3.6% in September. The reading followed the Reserve Bank of Australia’s 25-basis-point cash rate increase to 4.60% on 29 September. The rate path has become a focus for markets ahead of the Monetary Policy Board meeting on 2 and 3 November. Deputy Governor Andrew Hauser had described the figures as “higher than they should be,” while saying they were broadly in line with market and bank expectations.
The trimmed mean stood at 3.6% year on year in September, after the previous August reading was revised from 3.6% to 3.5% because of a change in seasonal factors, ABC News reported. On a quarterly basis, this measure of inflation rose 1.0% in the three months to September, and was up 3.6% over the year. The bank uses the trimmed mean, which excludes the most extreme price movements, as an important measure in assessing the inflation trend. The quarterly reading puts price movements during the quarter alongside the annual rate, while the annual reading showed an increase from August after its revision. Hauser said the level remained higher than it should be, while also noting that the figures were broadly in line with market and bank expectations.
Housing was the largest contributor to annual inflation in September, with prices rising 5.2%, followed by transport, which increased 8.7%, ABC News reported. Within the transport group, automotive fuel prices rose 9.4% in September from the previous month, after a 14.8% increase in August. The Australian Bureau of Statistics attributed the rise in fuel prices to higher global oil prices. The monthly comparison indicates that fuel price growth slowed from August’s pace, but remained a source of pressure in the September reading. These movements came within an overall reading that recorded a monthly increase of 0.8%, while annual inflation reached 4.3%.
The inflation figures were reflected in market pricing for the November decision: the implied probability of a rate hike rose from about 60% before the data to 79% afterward, according to overnight index swap pricing reported by ABC News. The Australian dollar rose 0.3% to 70.45 U.S. cents after the figures. In the stock market, the S&P/ASX 200 gave up about half of its early gains after inflation rose, according to the same report. ABC News linked the index’s decline to increased risks of a rate hike the following week. Market moves reflect a repricing of the prospect of monetary tightening, while Hauser said the figures were broadly in line with market and bank expectations.
The bank raised its cash rate target to 4.60% in September, in a move unanimously approved by the board, according to the minutes of its meeting published that month. The minutes said that “the strongest argument for raising the cash rate target at this meeting was that a number of the upside risks identified in August had materialised or were increasing.” The bank then pointed to the intensifying conflict in the Middle East, rising oil prices, and pressure on energy and costs. This background shows that the November decision comes after an earlier increase, while prices remain under the board’s scrutiny. According to the bank’s forecasts published in August, the trimmed mean was expected to remain above 3% until mid-2027, before declining to 2.5% by early 2028.
The Monetary Policy Board will hold its next meeting on 2 and 3 November, and will release its decision statement on 3 November at 2:30 p.m. Australian Eastern Daylight Time, followed by a press conference at 3:30 p.m., according to the bank’s schedule. This will be the next opportunity to review the policy path after September’s increase and the release of the new inflation figures. The bank’s schedule does not specify the decision in advance. For subsequent data, the Australian Bureau of Statistics has set 25 November as the release date for the October consumer price index. Markets are watching the decision and the next data releases as annual inflation rises to 4.3% and the market pricing of a rate hike increases.