Live updates: Inflation comes in hotter than expected ahead of RBA’s rate call

Commonwealth Bank had been expecting the RBA to hold fire next week, but its economists are now predicting a fifth rate hike of the year on Melbourne Cup day.

“We now expect the RBA to hike the cash rate by 25 basis points to 4.85 per cent,” economist Belinda Allen said.

“There are no guarantees it will be unanimous given the back-to-back hikes.

“The key question is whether four hikes this year is enough. Recent RBA communications have been hawkish and suggests the answer is no.

“Inflation remains too high in their minds and risks continue to sit to the upside.”

Westpac was one of the two big four banks tipping a November rate hike before today.

Unsurprisingly, the inflation data has done nothing to change that call.

Indeed, in a sobering update, the bank’s chief economist, Luci Ellis, thinks the chance of what would be a sixth hike this cycle has increased (although is far from certain yet).

“The question then turns to the future beyond November,” she said in a note.

“While we still expect a hawkish tone in the RBA’s communication until inflation has clearly turned down, further hikes beyond next week are not currently our base case.

“Clearly, the risks of another hike – most likely in February – have increased. 

“However, a lot can happen in three months, as we have just seen. Risks around energy prices could go either way.”

Chalmers has made the point that other countries are also struggling with inflation.

“Inflation has increased in every major advanced economy in September,” he says.

“That’s why the markets are expecting rate rises in all of them.

“Annual inflation has been increasing more in other countries than here, but we know that this doesn’t make it any easier for Australian families and Australians more broadly who are under pressure.”

Treasurer Jim Chalmers is speaking about the inflation figures from Canberra.

He starts by repeating a point he has made often in recent months: that the war in the Middle East is worsening inflation here.

“We already had an inflation challenge in our economy and the war in the Middle East is making it worse,” he says.

“We’ve seen higher oil prices driving higher inflation around the world, and today’s figures confirm that we are not immune from that.

“And that’s why, once again, from an economic point of view, the end of the war in the Middle East can’t come soon enough.”

It’s worth repeating that yes, the Iran war has made inflation worse – not just through the direct impact of higher petrol prices, but also from their flow-on effect to other areas of the economy, as well as other increasing costs such as fertiliser.

But inflation had already been well on the rise here before Israel and the US attacked Iran, and there are domestic factors – particularly anaemic productivity growth, and private and public demand – contributing to the problem.

If you want a quick indication of what the market thinks is going to happen to interest rates, the local sharemarket and Australian dollar are two good barometers.

Tellingly, the ASX200 dipped immediately following the ABS’s release (although it’s still up for the day so far), while the dollar jumped against the greenback – both clear signals that the market expects higher interest rates.

“The RBA needed this print to show some relief,” etoro lead analyst Josh Gilbert said.

“Instead, underlying inflation has moved the wrong way …

“With the cash rate already at 4.6 per cent after four hikes this year, it’s very hard to see the board sitting on its hands next week.

“Markets are now pricing close to an 80 per cent chance of a Melbourne Cup day hike, with the Aussie dollar pushing higher after the release.”

Several senior RBA officials, including Governor Michele Bullock and her deputy, Andrew Hauser, are in the middle of being grilled by federal politicians at a Senate hearing.

As you’d expect, they were asked for their opinion on today’s inflation figures – it’s not very often we get the chance for an immediate reaction from the RBA on CPI data.

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

“But to your point, these are too high.

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

Before today, Oxford Economics Australia had been predicting the RBA would hold fire for the rest of the year before handing down another hike in early 2027.

Now, though, they’re tipping an earlier-than-expected dose of bad news for mortgage holders and other borrowers.

“Trimmed mean inflation, the RBA’s preferred measure for rate-setting, increased to 3.6 per cent after a downward revision to 3.5 per cent for the August rate,” economist Harry McAuley said.

“Worryingly, services inflation jumped 0.4 percentage points to 4.1 per cent - a large and sticky component of underlying inflation.

“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.”

9News political editor Charles Croucher has had a look at the numbers, and he says they’re grim reading for anyone hoping to avoid another rate hike.

“Bad numbers for mortgage holders or anyone that is reliant on interest rates,” he says.

The trimmed mean has officially risen, but that’s only because last month’s initial reading has been revised down from 3.6 to 3.5 per cent.

“So it stays stubbornly high at that 3.6 per cent, outside the target range for the Reserve Bank of 2-3 per cent,” Croucher says.

“This all points towards interest rates rising as of Tuesday next week, just before the Melbourne Cup jumps.”

As we flagged earlier, there were a couple of predictable culprits behind the surge in inflation: housing and petrol.

“Housing was the largest contributor to annual inflation in September, rising by 5.2 per cent,” ABS head of price statistics Rachael McCririck said.

“Annual inflation of 5.2 per cent for housing reflected rising costs for both new dwellings and electricity.

“New dwelling prices rose 4.7 per cent in the 12 months to September as builders passed on higher costs for materials and labour.

“This is down from 5.4 per cent in the 12 months to August.” 

The second-biggest contributor to the headline figure was transport, including fuel costs.

“On a monthly basis, automotive fuel prices rose 9.4 per cent in September, compared to a rise of 14.8 per cent in August,” McCririck said.

“This was driven by higher world oil prices.”