Prices rose 5.4% when comparing the September 2023 quarter with the September 2022 quarter, while over the past three months prices rose 1.2%.

Underlying annualised inflation, excluding volatile items like fuel and food, was 5.2%.

Fuel prices rose 7.2% over the quarter, with rent (up 2.2%), new property (up 1.3%), and electricity (up 4.2%) also seeing significant price increases.

Higher global oil prices were likely the culprit for the increase at the petrol pump, and ABS head of labour statistics Michelle Marquardt said without the increases to Commonwealth Rate assistance, rent inflation would have been 2.5%.

"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," she said.

Electricity bills were also hugely offset by Energy Bill Relief Fund rebates, introduced this quarter.

"These rebates reduced electricity bills for all households in Brisbane and Perth, and for concession households in the remaining states and territories," Ms Marquardt said.

"Excluding the rebates, electricity prices would have increased 18.6 per cent in the September quarter."

The cost of child care (down 13.2%) and fruit and vegetables (down 3.7%) partially offset these gains, with Ms Marquardt again highlighting the impact of increases to the child care subsidy.

"This change reduced out of pocket costs for households, more than offsetting child care fee increases this quarter," she said.

"Without the changes to the Subsidy, child care would have increased 6.7%."

Favourable growing conditions, particularly for berries, grapes and salad vegetables like tomato and lettuce, helped bring fruit and veg prices down.

While rebates and subsidies helped mitigate some price increases, both headline inflation and quarterly trimmed mean inflation came in ahead of expectations from Australia's four largest banks.

Headline inflation prediction Quarterly inflation prediction
CBA 5.1% 1.0%
Westpac 5.3% 1.1%
NAB 5.2% 1.1%
ANZ 5.3% 1.2%

The monthly CPI indicator was also released today, showing a rise of 5.6% comparing September 2023 with September 2022.

The RBA view for November

In a speech on Tuesday night, RBA Governor Michele Bullock said despite the struggles of households facing elevated mortgage repayments, she and the board 'will not hesitate' to raise rates again to curb inflation.

"The longer a central bank permits inflation to remain outside target, the more likely it is that inflation expectations will shift," she said to the Commonwealth Bank markets conference in Sydney.

Today's CPI figures are the second of three major data releases that could guide the RBA decision on Melbourne Cup day, following unemployment data for September released last week.

Unemployment dropped slightly to 3.6%, but this was mostly due to people dropping out of the labour force altogether, with no big increase in employed Aussies.

CommBank economist Gareth Aird said this showed the labour market was softening slightly, but wouldn't stand in the way of a rate hike if other information, including today's release, was sufficiently strong.

With today's data came in above expectations from all of Australia's major banks, November's decision certainly looks more live than ever.

Yesterday, markets were ascribing a 21% chance of a rate hike to 4.35% in November, according to the ASX RBA Rate Tracker.

Already though, the Aussie dollar has started to climb in the aftermath of today's release, which could mean traders think there's a greater chance of a rate hike, and therefore stronger returns on Australian interest yielding products.

Adam Boyton, head of Australian economics at ANZ, who previously predicted the current 4.10% would be the terminal rate, has already revised his forecast.

"Given the hawkish rhetoric from the RBA over the past two weeks and an uncomfortably high Q3 CPI outcome, we now expect the RBA to increase the cash rate by 25bp in November to 4.35%."

Attention will now turn to retail trade numbers for September, set for release 30 October, as the final piece of the puzzle for the RBA decision on 7 November.

Picture by Franki Chamaki on Unsplash

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