26 Oct 2022

Australia's inflation at 32-year high at 7.3 percent in third quarter

4:23 pm on 26 October 2022
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Australia's inflation rate is now 7.3 percent, slightly above the New Zealand rate of 7.2 percent inflation. Photo: 123rf.com

Australia's inflation rate has edged above New Zealand's to a 32 year high.

Official numbers show Australian consumer prices rose 1.8 percent in the three months ended September taking the annual rate to 7.3 percent from 6.1 percent

The numbers were stronger than expected and compared with New Zealand's 7.2 percent annual rise.

Australian inflation raced to a 32-year high last quarter as the cost of home building and gas surged, a shock result that stoked pressure for a return to more aggressive rate hikes by the country's central bank.

A closely watched measure of core inflation, the trimmed mean, also climbed 1.8 percent in the quarter, lifting the annual pace to 6.1 percent and again far above forecasts of 5.6 percent.

That would be unwelcome news to the Reserve Bank of Australia (RBA) which had thought core inflation would peak at 6.0 percent in the December quarter, with CPI topping at 7.75 percent.

Instead, analysts were warning that both core and headline inflation were certain to spike even further this quarter with the Australian Bureau of Statistics' (ABS) new monthly CPI accelerating in September.

"The upshot is that CPI inflation will approach 8 percent in Q4," said Marcel Thieliant, a senior economist at Capital Economics.

"The stronger-than-expected rise in consumer prices is consistent with our forecast that the RBA will hike rates more aggressively than most anticipate."

It is particularly ill-timed for the RBA since it surprised many this month by downshifting to a quarter-point rate hike, following four moves of 50 basis points.

Rates have already risen by a massive 250 basis points since May and the RBA had wanted to go slower to see how the drastic tightening was impacting consumer spending.

Food costs soar

Investors now suspected the central bank may have to reconsider, perhaps not at its policy meeting next week but rather in December.

Futures still imply a quarter point move on 1 November to 2.85 percent, but now show some chance of a half-point hike in December and a peak for rates around 4.20 percent in July.

Australia's Labor government bowed to inflation concerns this week by restraining spending in its 2022/23 Budget, despite calls for more cost-of-living support amid soaring prices.

There are also fears recent flooding across eastern Australia will lift food prices even higher, with supermarket chain Coles warning of declining volumes in fresh food where prices were up 8.8 percent on a year earlier.

Wednesday's CPI report showed food prices were already climbing at an annual pace of 9.0 percent with the third quarter alone seeing a surge of 3.2 percent.

The ABS noted that annual inflation for essential goods and services leaped to 8.4 percent in the September quarter, highlighting the extent of cost-of-living pressures.

- RNZ / Reuters

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