Make it stop: Inflation roars to 7.3 per cent, and everything but the budget is to blame
Interest rates expectations were marked up today after inflation figures for the September quarter came in at 1.8 per cent and 7.3 per cent for the year, much higher than expected.
The economists at ANZ immediately lifted their expectations for the Reserve Bank’s cash rate to peak 3.85 per cent in May next year.
A .50 per cent hike in November was possible but their expectations were that the RBA would increase in smaller amounts over a longer period.
Bond prices also fell after the release of the CPI figures indicating that the market believes the RBA may have to be more aggressive.
Supply chain bottlenecks, high energy prices and expensive freight continue to drive up the cost of living.
Head of economics at the Commonwealth Bank Gareth Aird said inflation was still running “red hot” and he expected the RBA would respond by raising the cash rate again by 25 basis points (0.25 per cent) at the November board meeting next week.
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“We also now incorporate our risk scenario into our base case for the RBA Board meeting in December. That is, we now anticipate a further 25 basis point rate hike at the December board meeting, which would take the cash rate to 3.10 per cent on our forecast profile. We expect that to be the peak in the cash rate.
“And we still expect 50 basis point of rate cuts in the second half of 2023.
“It is worth noting that the RBA’s aggressive tightening cycle (250 basis points of rate hikes between the May and October Board meetings) has had no impact on the June or September quarter inflation outcomes.
“Indeed, the rapid recent rate hikes and our expectation of some further modest tightening is unlikely to shift the inflation needle over the December quarter; inflation is a lagging indicator. The impact of policy tightening will impact consumer inflation in 2023.”
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Addressing the National Press Club after delivering his first budget on Wednesday, Dr Chalmers said Labor felt for those doing it tough but had to be careful not to add extra inflationary pressure with any cost of living relief.
He said balancing support measures with the extraordinary level of inflation was a tough act.
“That temptation becomes a lot stronger when you see people hurting … as a Labor government, as Labor people, we feel that, we care about that, it keeps us awake,” he said.
“Whether it’s food, whether it’s electricity, whether it’s rent, inflation is public enemy number one, inflation is the dragon we need to slay.”
The cost of gas rose 10.9 per cent in the quarter and new dwellings were also big factor, rising at 3.7 per cent. Both categories are having a significant impact on the Australian economy and the capacity of households to cope with rising costs. Housing costs rose by 11 per cent in the year ending in September.
Westpac said without the electricity subsidies paid in WA, Queensland and ACT, electricity prices would have risen 15.6 per cent in the quarter, but would emerge in the December quarter, and possibly into early 2023, as the use of these rebates fade.
“And this is before any further increase in power bills are applied,” Westpac said.
Brisbane’s inflation was running at 1.8 per cent in the September quarter, well behind Adelaide on 2.6. Perth actually went backwards during the quarter.
On a national basis, inflation was running at the highest rate since 1990.
