Inflation hits four-month high as major bank tips November rate hike
Inflation has jumped to a four-month high of 4 per cent, on the same day one of Australia’s largest banks predicted another interest rate rise before Christmas.
The latest figures landed just a day after the Reserve Bank lifted the cash rate to 4.6 per cent, and Westpac has now made a November hike its most likely scenario.
Westpac is predicting a November rate hike. Lisa Maree Williams/Getty Images
Headline inflation rose to 4 per cent in August, while the trimmed mean – the RBA’s preferred measure of underlying inflation – held steady at 3.6 per cent.
Housing costs were the biggest culprit, up 5.7 per cent over the year as electricity bills and the cost of building new homes climbed.
“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.”
Petrol also delivered another blow, with fuel prices jumping 14.8 per cent in August alone.
Higher global oil prices and the end of the federal government’s fuel excise relief both contributed to the increase.
“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.”
Treasurer Jim Chalmers pointed to the war in Iran as the main driver behind the latest headline increase.
“These numbers confirm that the overwhelming reason why inflation went up in August in headline terms was higher global oil prices,” he said.
“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.”
The figures landed a day after the Reserve Bank lifted the cash rate to 4.6 per cent, with Westpac now making a November hike its base case. Chris Hopkins
Westpac chief economist Luci Ellis said Tuesday’s RBA decision, coupled with global energy costs, had strengthened the case for another rate hike.
“The bar for a follow-up hike in November is low,” Ellis said.
“Indeed, judging by [Tuesday’s] rhetoric, 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.”
But financial markets appeared less convinced that Wednesday’s inflation result made another hike inevitable.
The Australian dollar fell about a third of a US cent immediately after the figures were released – an indication the market isn’t expecting a fifth rate hike of the year following the inflation data.
Oxford Economics’ Harry McAuley also expects households will dodge another rate rise this year.
“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.”
The RBA has already lifted rates four times this year, with Tuesday’s 0.25 percentage point increase taking the cash rate to its highest level since late 2011.
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