Australian inflation rises to 32-year high | Business and Economy

Australian inflation rises to 32-year high |  Business and Economy

Australian inflation rises to 32-year high | Business and Economy

Annual price growth was 7.3 percent in the July-September period, the highest since 1990.

Australia’s inflation hit a 32-year high last quarter as housebuilding and gas costs rose, a surprise result that fueled pressure on the country’s central bank to return to more aggressive rate hikes.

Australian Bureau of Statistics (ABS) data on Wednesday showed the consumer price index (CPI) rose 1.8 per cent in September, beating market expectations of 1.6 per cent.

The annual rate rose to 7.3 percent from 6.1 percent, the highest since 1990 and nearly three times the rate of wage growth.

A closely watched measure of core inflation, the narrowed average, also rose 1.8 percent in the quarter, raising the annual pace to 6.1 percent and again above forecasts of 5.6 percent.

That would be bad news for the Reserve Bank of Australia (RBA), which said core inflation would peak at 6 percent in December, while CPI would come in at 7.75 percent.

Instead, analysts warned that both core and headline inflation would rise further this quarter, with the ABS’ new monthly CPI accelerating in September.

“The bottom line is that CPI inflation will approach 8 percent in the fourth quarter,” said Marcel Thieliant, a senior economist at Capital Economics.

“The rise in consumer prices is stronger, with our forecast that the RBA will raise them more aggressively than most expect.”

It’s particularly bad for the RBA as it surprised many this month by dropping to a quarter-point rate hike after four moves of 50 basis points.

Rates have already risen by 250 basis points since May and the RBA wanted to go slower to see how the sharp tightening was affecting consumer spending.

Investors now suspected the central bank would have to reconsider, perhaps not at next week’s policy meeting, but in December.

Futures still assume a quarter-point move to 2.85 percent on Nov. 1, but now show the possibility of a half-point increase in December and a peak in rates of roughly 4.20 percent in July.

The European Central Bank and the Bank of Canada are expected to raise rates by 75 basis points this week, and the United States Federal Reserve is expected to equalize at its November 2 meeting.

Australia’s Labor government this week played down inflation concerns by cutting spending in the 2022-23 Budget, despite calling for more cost-of-living support amid rising prices.

There are also fears Recent floods in eastern Australia will push food prices even higher, with supermarket chain Coles warning of a fall in fresh food volumes, where prices rose 8.8% on a year earlier.

Wednesday’s CPI report showed that food prices were rising at an annual rate of 9 percent, with a 3.2 percent increase in the third quarter alone.

The ABS said annual inflation for essential goods and services rose to 8.4 per cent in the September quarter, highlighting the extent of cost-of-living pressures.

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