Today's news that quarterly inflation has rebounded back to 1.2 per cent is a double-whammy for Frances Chapman, as it is for most Australians with a mortgage.
Key points:
- Inflation rebounded in the September quarter, driven by surging fuel prices
- Financial markets are now pricing in around a 60 per cent chance of the RBA raising interest rates in November
- Price increases would have been much bigger without increased government subsidies for electricity, child care and rents
Not only does it reveal just how much extra her family is paying to buy essentials, but it has also more than doubled the odds of another interest rate rise in a fortnight's time.
"That's pretty scary to think about, to be honest," she said.
"I'm not sure we could handle much more of a rate increase.
"So, ultimately, I guess we would have to look at trying to find a cheaper place to live and … we worked really hard to be able to afford this home."
Consumer prices rose 1.2 per cent in the September quarter, an acceleration from the 0.8 per cent increase in the June quarter.
That leaves the annual rate of inflation at 5.4 per cent.
While that is lower than the 6 per cent recorded in June, it is slightly above most economists' forecasts, which centred on 1.1 per cent for the quarter and 5.3 per cent for the year.
Inflation surprise could make interest rate call a 'formality'
It is also above the trajectory the Reserve Bank was previously forecasting, meaning that it might feel compelled to raise interest rates again to speed up the decline in inflation.
Analyst Tony Sycamore from IG is viewing another rate rise as all but certain.
"We think a Melbourne Cup Day rate rise is likely a formality after today's inflation overshoot, and given the RBA's more hawkish communique," he noted.
"As stated in the October RBA meeting minutes, 'The board has a low tolerance for a slower return of inflation to target than currently expected'."
Before today's release, markets had priced in a roughly 30 per cent chance of interest rates rising at the RBA's next meeting on Melbourne Cup Day, November 7.
In the hours after the release, those odds had passed 60 per cent.
ANZ has revised its interest rate forecast on the back of the inflation data, and now tips one final rate hike next month before the RBA is finished.
"While 4.35 per cent should mark the peak in the cash rate, there is a risk it could tighten beyond that. Any easing remains a very long way off," the bank's head of Australian economics, Adam Boyton, wrote in a note.
"Having said that, a rate hike in November is not certain.
"Wages growth has generally undershot the RBA's expectations over this cycle, while the likely increase in productivity in Q3 [the September quarter] should provide some comfort to the [Reserve] Bank that a reversion to the pre-COVID trend is plausible."
The Commonwealth Bank has also made a November rate rise its base case, saying there is a 70 per cent chance the RBA will move on Melbourne Cup Day.
Loading...AMP senior economist Diana Mousina is less certain of a rate hike, and said the Reserve Bank will have a tough decision to make on November 7.
"The numbers are really in a grey zone," she told ABC News.
"I think that there is a complete 50/50 coin toss as to whether the RBA will hike rates in November."
Frances Chapman said next month's decision could determine whether her family could continue living in their eastern Sydney home.
"We might consider leaving Sydney — potentially moving down the south coast or something like that," she explained.
"That would obviously have huge repercussions on our kids. Our kids are at school, we're part of a community here … we own a small business in the area, so we would have to sell that business as well.
"So that would be a really big move for us and really dislocate us from our community. I really hope we won't have to do that."
What pushed inflation back up?
The biggest contributions to inflation in the September quarter came from fuel (up 7.2 per cent), rents (up 2.2 per cent), new dwelling purchases (up 1.3 per cent) and electricity (up 4.2 per cent).
The jump in fuel prices was the largest quarterly rise since the March 2022 response to Russia's invasion of Ukraine.
However, inflation would have been even higher without the direct effect of government subsidies bringing out-of-pocket costs down for electricity, child care and some renters.
While the annual growth in rents was the largest since 2009, at 7.6 per cent, the ABS said it would have been worse without government intervention.
"This is the largest increase in Commonwealth Rent Assistance for 30 years and, while the increase applied for only part of the quarter, it reduced the overall increase in rents by 0.3 percentage points," noted ABS head of price statistics Michelle Marquardt.
"Excluding the rebates, electricity prices would have increased 18.6 per cent in the September quarter."
Parents of young children saw their childcare costs drop 13.2 per cent after the government's changes to subsidies took effect in July.
"This change reduced out-of-pocket costs for households, more than offsetting childcare fee increases this quarter," Ms Marquardt noted.
"Without the changes to the subsidy, child care would have increased 6.7 per cent."
There was also some cost of living relief from falling fruit and vegetable prices.
"Fruit and vegetable prices fell this quarter due to favourable growing conditions," Ms Marquardt noted.
"Berries, grapes, and salad vegetables such as tomatoes, broccoli and capsicums drove the fall."
Holidays also became cheaper, as prices continued to ease back from post-COVID peaks.
However, while other services prices eased on annual basis for the first time since December 2021, the fall from 6.3 to 5.8 per cent was not as rapid as many analysts had hoped.
Diana Mousina said there may not be a need to panic that services inflation appears "stickier" than goods prices.
"While services prices look elevated, it's important to keep in mind that services prices lagged goods prices on the way up so are naturally also lagging on the way down," she observed.
https://news.google.com/rss/articles/CBMiYmh0dHBzOi8vd3d3LmFiYy5uZXQuYXUvbmV3cy8yMDIzLTEwLTI1L2luZmxhdGlvbi1jb25zdW1lci1wcmljZS1pbmRleC1hYnMtc2VwdGVtYmVyLTIwMjMvMTAzMDE4OTEw0gEoaHR0cHM6Ly9hbXAuYWJjLm5ldC5hdS9hcnRpY2xlLzEwMzAxODkxMA?oc=5
2023-10-25 01:54:23Z
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