Inflation unlikely to worry RBA just yet

Colin Brinsden, AAP Economics and Business Correspondent
(Australian Associated Press)


Annual inflation remained elevated in the September quarter, but economists are not expecting the Reserve Bank of Australia to step in just yet to lift interest rates.

The consumer price index rose 0.8 per cent in the September quarter, as economists had expected, and largely driven by the rising cost of new homes and fuel.

The Australian Bureau of Statistics said the annual rate of inflation was three per cent, retreating from the COVID-related spike to 3.8 per cent in the June quarter.

The real surprise for economists was the strength of underlying inflation, which smooths out excessive price swings and is more linked to interest rate decisions made by the Reserve Bank of Australia.

It rose 0.7 per cent in the quarter to 2.1 per cent annually compared with respective forecasts of 0.5 per cent and 1.9 per cent.

The ABS said this was the strongest annual increase since 2015.

The RBA has repeatedly said it will not raise the cash interest rate until inflation is sustainably within its two to three per cent target, which it has not expected to occur until 2024.

“The Reserve Bank will be alert at this point, but not alarmed,” Commonwealth Securities chief economist Craig James said.

“The Reserve Bank would need to see a few more quarterly moves of 0.7 per cent before it accepts that inflation is sustainably back in the 2-3 per cent target band.”

ABS head of prices statistics Michelle Marquardt said fuel costs rose 7.1 per cent in the quarter, reaching the highest level in the CPI’s half-century history.

The ABS noted the maximum average daily unleaded petrol price for Australia reached a record high of $1.65 per litre during the September quarter.

New dwellings purchased by owner-occupiers rose 3.3 per cent.

“Construction input costs such as timber increased due to supply disruptions and shortages,” Ms Marquardt said.

“Combined with high levels of building activity, this saw price increases passed through to consumers.”

BIS Oxford Economics chief economist Sarah Hunter said the impact of global supply chain disruptions was also apparent.

She said many consumer products including furniture, motor vehicles and electrical items – such as computers, audio equipment and household appliances – all recorded significant increases.

“The transitory headwinds from higher commodity prices and global supply chain disruptions will continue, which will keep headline inflation at – or even above – three per cent in the near term,” Dr Hunter said.

“But as these factors are external, they are very unlikely to push the RBA into pulling forward the first cash rate rise, and their impact will fade over time as conditions normalise.”

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