Inflation data As It Happened: Inflation surges to three-month high after rate hike

AMP economist My Bui says today’s inflation data won’t have changed the RBA’s thinking much, if at all, ahead of its November meeting.

“While slightly lower than anticipated, [it] doesn’t change the big picture for the RBA,” she said.

“We continue to see the trimmed mean inflation for the third quarter slightly overshooting the previous forecasts and show that over the prior few months, the economy was still a bit too hot and above its supply capacity.

“However, the inflation data was also consistent with a gradual slowdown towards year-end as rate rises take effect.

“Remember that inflation and unemployment are lagging indicators, while coincident and forward-looking measures (including household spending and building approvals) are starting to lose some momentum.

“We think that the Reserve Bank will continue to remain hawkish with a tightening bias in upcoming months, but the data can slow enough for them to remain on hold in the November meeting.”

The RBA’s next decision will be released on November 3, meaning the board will have another round of unemployment, spending and, crucially, inflation data before its meeting begins.

That’s a welcome change from this week, when the board’s decision came before today’s data.

Nine political editor Charles Croucher said that next batch of data will be crucial.

“The trimmed mean, which is the one the Reserve Bank has been looking at, is at 3.6 per cent. That’s steady,” he said.

“So that is the one ray of hope.

“The other part is that because of the Reserve Bank decision yesterday, we get another month’s worth of figures before the Reserve Bank makes its next decision on Melbourne Cup day.”

He pointed out, though, that many of the components of inflation that are surging – groceries, electricity, petrol – are essentials, so households can’t simply stop buying them when they get too expensive.

“These are things that people need,” he said.

“So these aren’t the things you can simply cut out.

“And that’s particularly prevalent with housing. It makes the RBA’s job harder.”

Chalmers says he and Michele Bullock have been “entirely consistent” in outlining what’s caused higher inflation, even though the RBA governor has pointed to a combination of domestic and global factors, while he’s focused on the latter.

“It’s entirely consistent with what I have said yesterday morning, yesterday afternoon and on other occasions,” he says.

“We have an inflation challenge in our economy. It’s made worse by the war in the Middle East, and you can see that in today’s inflation figures.”

He adds his relationship with Bullock is strong.

“I confer regularly and compare notes regularly with Governor Bullock,” he says.

“I like working with her. We have similar objectives and looking for a lower stable inflation.

“But we have different responsibilities. I recognise and respect the independence of the Reserve Bank, and we meet or talk regularly, formally, informally, about all of the challenges in our economy.”

Treasurer Jim Chalmers is up at a press conference in Sydney to chat all things inflation.

He’s started by pointing the finger squarely at the war in Iran for today’s higher CPI – a line very much from the same songbook he’s been singing from over the last few days.

“These numbers confirm that the overwhelming reason why inflation went up in August in headline terms was higher global oil prices,” he told reporters.

“In fact, all of the increase in annual headline inflation was from a combination of higher fuel costs and the unwinding of last year’s energy rebates.

“It’s also important to remember that today’s increase in annual headline inflation comes after four consecutive months of moderation.

“The re-escalation of the war in the Middle East is pushing up fuel costs.

“It’s pushing up inflation and interest rates right around the world, and these numbers show that Australia is not immune from that.”

It’s worth repeating a point that we made in yesterday’s interest rates blog here: yes, the war in the Middle East has been disastrous for inflation, particularly given Australia’s need for goods like diesel and fertiliser.

However, inflation was on the rise here before the US and Israel attacked Iran, and the Australian economy has some significant issues, primarily related to productivity, that are contributing to inflation.

Immediately following the release of the ABS’s inflation data, the Australian dollar shed about a third of a cent against the greenback.

There’s a few things to unpack here.

On the one hand, this isn’t great for the inflation fight. One of the ways in which higher interest rates work to bring down prices is by increasing the exchange rate, which in turn makes imports cheaper.

But on the other, there’s a silver lining for households here, as it’s an indication the market isn’t expecting a fifth rate hike of the year following the inflation data – likely due to the figures coming in in line with expectations, rather than higher as some had feared.

Core inflation will remain above target for at least another year, but households will be spared a fifth rate hike of 2026, according to Oxford Economics’ Harry McAuley.

“Sustained higher oil prices are bleeding through prices beyond the pump, maintaining upward price pressure on core goods and services,” the economist said.

“We expect this to continue into 2027 and forecast trimmed mean inflation to sit above 3 per cent until early 2028.

“Yesterday’s rate hike came with a less hawkish statement than we saw at the previous meeting.

“We saw household spending stagnate in August after strong growth in the preceding three months, evidence that hikes earlier this year are having an impact on private demand.

“On balance, we don’t expect another hike until after the Christmas break, however a sustained period of oil above $100 per barrel presents upside risks for another hike in 2026.”

Taking a look under the hood at what caused the jump in inflation, there’s a few main culprits.

Two are categorised by the ABS as housing costs: electricity, and construction of new homes.

“Housing was the largest contributor to annual inflation in August, rising by 5.7 per cent,” ABS head of price statistics Rachael McCririck said.

“Annual inflation of 5.7 per cent for housing reflected rising costs for both new dwellings and electricity.

“New dwelling prices rose 5.4 per cent in the 12 months to August as builders passed on higher costs for materials and labour.” 

As expected, petrol prices surged in August as well, partly due to the last of the fuel excise discount coming off, and partly due to conflict in the Middle East re-escalating.

“On a monthly basis, automotive fuel prices rose 14.8 per cent in August, compared to a rise of 7.5 per cent in July,” McCririck said.

“This was driven by higher world oil prices and the unwinding of the remainder of the federal government’s fuel excise relief measures in August.”

The inflation figures have been released, and they’re bang on with what economists were expecting: headline CPI is up to 4.0 per cent, while the trimmed mean is steady at 3.6 per cent.

Westpac has jumped the gun, predicting another rate hike in November before today’s inflation figures are published.

The big four bank’s chief economist, Luci Ellis, said the RBA appears more hawkish (i.e. is using language that suggests another hike) than it did in August.

“The post-meeting statement language included that the board ‘will continue to do what it considers necessary to bring inflation sustainably back to target, including increasing the cash rate target further if needed’,” Ellis said.

“[That’s] a small but meaningful change from the ‘if upside risks materialise’ language from the previous meeting, and back to the tone of the language at the June meeting.

“The bar for a follow-up hike in November is low. Indeed… a November hike is now the base case, absent a lasting resolution of the Middle East conflict beforehand, or some other event that significantly lowers the outlook for energy-related costs in Australia.

“The bar for hikes beyond that is much higher, given the cumulative rise in interest rates, and noting that the labour market is easing and the housing market will likely weaken further.”

ANZ is also predicting a fifth hike of the year in November.