Millions of Aussies expected to be burnt after another scorching inflation read

Australians look increasingly likely to be burnt by what would be a fifth interest rate hike of the year on Melbourne Cup day after another dose of hotter-than-expected inflation data.

For the 12 months to September, prices rose 4.3 per cent. Only once since late 2023 has the headline CPI been higher – that came this March, when the Australian economy was reeling from the shock of the war in the Middle East.

While that headline figure can bounce around, there was no relief in the crucial trimmed mean – the RBA’s preferred measure of underlying inflation – which remains well above target at 3.6 per cent.

The reaction from the market was swift.

Pricing of a rate hike next Tuesday increased from 60 to 80 per cent, the nation’s biggest lender, Commonwealth Bank, abandoned its previous prediction of a hold next week, and some economists said another increase is all but certain.

If a 25-basis-point hike is handed down, it would take the cash rate to 4.85 per cent – the highest since November 2008.

“Worryingly, services inflation jumped 0.4 percentage points to 4.1 per cent - a large and sticky component of underlying inflation,” Harry McAuley from Oxford Economics said.

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“Rumblings from senior figures at the RBA over the past fortnight highlight the board’s concern that inflation is becoming more ingrained.

“Today’s print will have done little to dissuade the bank from that thinking.

“We had anticipated the board’s next move to be a hike early next year. But all signs now point to that move coming next week.”

The market was also given another dose of rumblings to pore over from the RBA, who coincidentally had several senior figures up at a Senate inquiry as the inflation data was released.

“These numbers are broadly in line, my take is, with market expectations and, candidly, where we thought it would be as well,” Deputy Governor Andrew Hauser said.

“But … these are too high.

“We have said that repeatedly, and I’m sure that we will say that again today.”

Those comments came after Governor Michele Bullock, in her opening address, had reiterated the central bank’s desire to clamp down on inflation, despite the pain meted out to mortgage holders and other borrowers through the high cash rate.

“I recognise that higher interest rates can be difficult, particularly for households with mortgages who are also facing cost-of-living pressures,” she said.

“But we can’t allow high inflation to persist.

“High inflation hurts everyone. It means higher grocery costs, higher rent, and higher electricity bills.

“It makes everyone’s pay packets and savings worth less – and it particularly hurts people with lower incomes and little savings.”

Westpac, which had already tipped a hike next week, noted the risk of a sixth hike has increased – in part thanks to the RBA’s Senate appearance – and AMP economists Diana Mousina and My Bui said they aren’t sure whether an increase next week will get the job done on inflation.

“It’s hard to see how the Reserve Bank doesn’t raise the cash rate again at next week’s meeting, given that top RBA officials were sounding very hawkish last week,” they said.

“Today’s data gives them no room to escape from this hawkish sentiment – inflation is well above target, it has surprised higher and there are no clear signs that it’s easing.

“If the RBA doesn’t raise rates next week, then their credibility could take a hit and embed higher inflation expectations further.”

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In a small glimmer of hope, some analysts pointed out the RBA does have a reason or two up its sleeve to hold next week – rising unemployment, households already tightening their belts, and waiting for the effects of last month’s hike to come into effect.

“[That] gives the board an argument for holding fire,” etoro lead analyst Josh Gilbert said, although he quickly warned the bank is “unlikely to use it”.

“This is undoubtedly turning into a higher-for-longer story, and it’s very clear that Australia is losing the battle against inflation right now,” he added.

“Anyone holding out for rate relief may need to pack plenty of patience, because another hike looks imminent after today.”

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