Australian Inflation at 4.3% Ahead of Rate Decision as Hike Bets Accelerate
Key Facts
Australia’s consumer price index rose 4.3% in the 12 months to September, compared with a 4.0% increase through August, according to the Australian Bureau of Statistics. The reading came ahead of the Reserve Bank of Australia’s decision scheduled for November 3, with the cash rate target at 4.60%, according to the central bank. The trimmed mean, which excludes some volatility, also rose to 3.6% from 3.5% over the same period. The figures put price pressures at the forefront of considerations ahead of the meeting, but do not predetermine the decision. Accelerating inflation had prompted markets to price in a higher probability of a rate hike in November.
Data for the September quarter showed the consumer price index rising 1.3%, after a 0.6% increase in the previous quarter, according to data reported by Reuters via Investing.com. The annual inflation rate calculated from the quarterly pace was 3.9%, versus 4.0% in the previous quarter, matching the forecast cited in the report. The comparison offers a more detailed picture than the 12-month reading: inflation accelerated quarter on quarter, while the annual rate calculated this way edged down. The central bank is monitoring how broad and persistent price pressures are. It is scheduled to announce an update to the cash rate target on November 3.
In another sign of domestic price pressures, the producer price index for final demand excluding exports rose 1.1% in the September quarter and was up 3.6% in the 12 months through that quarter, according to the Australian Bureau of Statistics. The agency attributed the quarterly increase mainly to price growth in the construction and services sectors. These components show that higher producer prices were not confined to one category, but were linked to broad sectors of domestic activity. The reading adds evidence of the persistent pressures the bank faces in assessing the inflation path. The official cash rate, however, remains at 4.60% until the update announced for November 3.
Rate-hike bets had jumped to about 51% on October 21, from 22% the previous day, according to market pricing reported by Reuters via Investing.com. The report linked the increase to Deputy Governor Andrew Hauser’s warning about deteriorating inflation expectations. Market pricing at the time pointed to the possibility of a 25-basis-point hike to 4.85% at the early-November meeting; this reflected investor probabilities, not an announced bank decision. The comparison between market bets and the official rate of 4.60% therefore remains important ahead of the meeting. The November 3 update will be the next official occasion to set the cash rate target.
In the United States, real gross domestic product grew at an annual rate of 3.4% in the third quarter, after growth of 2.2% in the second quarter, according to the Bureau of Economic Analysis. Investment, consumer and government spending contributed to the increase, partly offset by a decline in exports. On prices, the core personal consumption expenditures price index, which excludes food and energy, rose 0.3% in September from the previous month, while the headline index increased 0.5%, according to the bureau. The data provide a dual U.S. backdrop of stronger growth and monthly price pressures as the Australian rate decision approaches. These figures alone do not establish a direct causal link to moves in the Australian dollar.
The Australian dollar against the U.S. dollar closed at 0.70307 on October 30, compared with 0.70531 on October 28, according to EL7 data. The two closes show the pair declined between those dates, as markets awaited the Australian bank’s decision and U.S. data. This follows increased market pricing of a chance of an Australian rate hike in October, while no official decision had yet been announced. The next dates include the U.S. October employment report on November 6 at 08:30 a.m. Eastern Time, according to the Bureau of Labor Statistics. The Bureau of Economic Analysis also set November 25 for the release of its second estimate of third-quarter GDP and October personal income and spending data.