September CPI expected to show significant increase in inflation
- Quarterly inflation through to September is expected to be between 1.1 and 1.2%.
- That's above current RBA forecasts and could point towards no more rate cuts this year.
- RBA Governor Michele Bullock also says the Board "won't jump" at the recent increase in unemployment.
Economists from each of the big four banks are officially predicting Wednesday's inflation data to reveal prices rose between 1.1% and 1.2% from July to September, and for the annual headline rate to be around 3.0-3.1% for the twelve months to September.
That would be a major jump from the June quarter when prices rose 0.7% through the quarter and 2.1% annually.
Trimmed mean inflation (excluding things with volatile prices like food and fuel) is expected to be between 0.8% and 0.9% through the quarter and 2.7-2.8% annually.
Such increases would be well above RBA forecasts (around 0.6% trimmed mean through the quarter and around 2.50% through the year per the August Statement on Monetary Policy) and would diminish the odds of further cash rate cuts this year.
RBA Governor Michele Bullock told the annual ABE business dinner on Monday the board would likely consider quarterly inflation 30 basis points higher than forecast a "material" upside surprise.
"If [quarterly inflation] came in at 0.9%, I think that would be quite a material miss," she said.
Major bank predictions
| q/q | y/y | Trimmed mean q/q | Trimmed mean y/y | |
|---|---|---|---|---|
| CBA | 1.1% | 3% | 0.8% | 2.7% |
| WBC | 1.1% | 3% | 0.8% | 2.7% |
| NAB | 1.1% | 3% | 0.9% | 2.8% |
| ANZ | 1.2% | 3.1% | 0.9% | 2.8% |
Risks 'tilted to the upside'
Quarterly estimates for September have been upwardly revised since the rate cut in August, with the monthly figures showing bigger price growth than anticipated.
Despite this, Westpac economist Justin Smirk says the bank still considers the risks to its revised forecast (0.8%) to be predominantly to the upside.
With lower interest rates and a surge in buyer activity in light of the expansion of the 5% Deposit Scheme, property prices continue to go up, and Mr Smirk said this could end up being what pushes inflation up.
"The August Monthly CPI Indicator may signal a stronger trend in dwelling purchase costs," he said.
"Given dwellings make up about 7.5% of the [Quarterly] CPI and are typically included in the Trimmed Mean, any [upward] shift...could influence core inflation."
The Cotality Home Value Index (HVI) suggests property prices rose 0.8% in September, the highest monthly increase in almost two years.
RBA won't jump at unemployment
The unemployment numbers for September added another layer of uncertainty to the November monetary policy decision.
Australia's unemployment rate is now 4.5%, above RBA forecasts and the highest it's been since November 2021.
Increasing joblessness has been flagged as a potential impetus for further cash rate cuts, but the September numbers also showed the number of employed Australians still grew by 15,000.
It's the pool of potential workers that's increasing, and Ms Bullock told the ABE dinner the Board don't want to "leap at a single number".
"There are still jobs being created, just not as many," she said.
"We think the labour market is still a little bit tight, this is bringing the labour market back to balance."