© Stocksak. FILE PHOTO – A customer looks at products with marked prices at a chemist in central Sydney, Australia. July 25, 2018. REUTERS/David Gray
SYDNEY (Stocksak). -Australian inflation soared to a 32-year-high last quarter as gas and home building costs rose. This shock result fueled pressure for more aggressive rate hikes from the central bank.
The Australian Bureau of Statistics (ABS), Wednesday’s data, showed that the consumer price index (CPI), rose 1.8% in September quarter. This was above market expectations of 1.6%.
The annual rate rose to 7.3% from 6.1%, which was the highest since 1990. It is almost three times faster than the rate of wage growth.
The closely watched core inflation measure, the trimmed means, also increased 1.8% in quarter. This brought the annual pace to 6.1%, far exceeding forecasts of 5.6%.
The Reserve Bank of Australia (RBA), who had predicted that core inflation would reach 6.0% by December quarter and CPI would rise to 7.75%, would not be pleased with this news.
Analysts warned instead that headline and core inflation would spike even more this quarter, with the ABS’s September CPI acceleration.
Marcel Thieliant is a senior economist at Capital Economics. “The bottom line is that CPI inflation will reach 8% in Q4,” he said.
“The stronger-than-expected rise in consumer prices is consistent with our forecast that the RBA will hike rates more aggressively than most anticipate.”
This is especially unfortunate for the RBA, as it has surprised many by downshifting to a quarter point rate hike this month, following four moves that were 50 basis points apart.
Rates have risen by 250 basis points in May. The RBA wanted to slow down the pace to assess the impact on consumer spending.
FOOD COSTS SOAR
Investors now suspect that the central banks may need to reconsider, maybe not at its policy meeting next Wednesday but rather in December.
Futures still indicate a quarter point change on Nov. 1 to 2.85% but now suggest some possibility of a half-point increase in December and a peak in rates around 4.20% for July.
The European Central Bank, Bank of Canada, and Bank of England are both expected this week to raise their rates by 75 basis point each. The Federal Reserve will match that at its meeting Nov. 2.
Australia’s Labor government caved to inflation concerns this Week by reducing spending in its 2022/23 Budget despite calls for more cost of living support given the soaring costs.
There are also concerns that recent flooding in eastern Australia could cause food prices to rise further. Coles, a supermarket chain, warned of falling fresh food volumes. Prices for fresh food were up 8.8% compared to a year ago.
Wednesday’s CPI report revealed that food prices had already risen at 9.0% annually, with a 3.2% increase in the third quarter.
The ABS reported that 8.4% annual inflation in essential goods and services was recorded in the September quarter. This highlights the extreme cost-of-living pressures.