Australia's inflation jumped 1.3 per cent in the September quarter, more than double the 0.6 per cent rise of the June quarter and above the 1.2 per cent economists had forecast, putting a fifth interest rate rise this year firmly in play when the Reserve Bank of Australia meets next week. The figures, released by the Australian Bureau of Statistics on Wednesday, showed prices rose 0.8 per cent in September alone, taking annual inflation to 4.3 per cent — up from 4.0 per cent in August, above the 4.2 per cent expected, and the highest since March. Measured across the quarter, prices were 3.9 per cent higher than a year earlier, still far above the Reserve Bank's target band of 2 to 3 per cent.
It was the detail underneath the headline that most concerned the central bank. The trimmed mean — the Reserve Bank's preferred measure of underlying inflation, which strips out the biggest price rises and falls each quarter to reveal the trend beneath — rose 1.0 per cent in the quarter, well above the 0.8 per cent the Bank itself had forecast in August. Over the year, trimmed mean inflation climbed to 3.7 per cent, up from 3.6 per cent in the June quarter, moving away from the target band instead of towards it. A second core measure, the weighted median, also rose 1.0 per cent in the quarter.
Fuel did much of the damage. Petrol prices leapt 9.4 per cent in September alone, after a 14.8 per cent surge in August, and were 23.6 per cent higher than a year earlier, pushed up by world oil prices as the Middle East conflict intensified. Electricity prices were 12.8 per cent higher over the year as government power-bill rebates ended. Housing was the largest contributor to annual inflation, rising 5.2 per cent, with the cost of a new home up 4.7 per cent as builders passed on higher materials and labour costs, and transport costs overall rose 8.7 per cent. Prices rose in every capital city, and inflation generated at home — services and other non-tradables — is still running above 4 per cent. That breadth is what most worries the Bank.
The numbers landed while Governor Michele Bullock and her senior team were appearing before a Senate estimates hearing in Canberra, and they did not soften their language. Bullock said inflation is far too high, that it is difficult to completely look through supply shocks like the current surge in energy prices, and that demand in the economy is still running ahead of its capacity to supply. "The Monetary Policy Board will meet next week," she said. "We'll discuss our assessment of the flow of data and how the risks are unfolding. A key question is whether the tightening in monetary policy to date will be sufficient to bring inflation back to target in a reasonable time." Her deputy, Andrew Hauser, said: "These numbers are broadly in line with the market expectations and, candidly, where we thought it would be as well. But these are too high. We have said that repeatedly, and I'm sure that we will say that again today." Bullock had warned, even before the release, that inflation was likely to run higher than the Bank's August forecasts, and she gave no guidance on next week's decision. Chief economist Sarah Hunter said the figures were stronger than the Bank had expected in August, though she does not expect a recession.
The cash rate is the benchmark interest rate the Reserve Bank sets, and it flows through to what banks charge on home loans and pay on savings. The Board has already raised it four times this year, by a quarter of a percentage point each time — on 3 February, 17 March, 5 May and 29 September — lifting it a full percentage point, from 3.60 per cent to 4.60 per cent, its highest level in 15 years. The September rise was agreed by all nine members of the Board.
Before Wednesday, the big four banks were split — two expecting another rise in November, two expecting a hold. Financial markets were not. Pricing for a rise on 3 November, Melbourne Cup Day, jumped from roughly 60 to 70 per cent before the data to around 80 per cent or more after it, and the Australian dollar climbed to a five-week high above 70 US cents. A fifth rise would take the cash rate to 4.85 per cent. The Bank will publish updated forecasts with the decision, showing how far its outlook has shifted since August. Treasurer Jim Chalmers pointed to the global oil shock: "We've seen higher oil prices driving higher inflation around the world and today's figures confirm we are not immune from that."
For households, none of this is abstract. Inflation at 4.3 per cent steadily eats into wages and savings, power bills are climbing again now that the rebates have ended, and each quarter-point rise in the cash rate adds roughly $76 a month to repayments on a $600,000 mortgage when lenders pass it on in full — on top of the four rises already delivered this year. That is the squeeze the Board must weigh against the danger of letting high inflation settle in for good.
It is a striking turn for a country long held up as the model economy of the developed world. From 1991 until the pandemic finally ended the run in 2020, Australia went nearly three decades without a recession — the longest such expansion on record among advanced economies. Today it is fighting the same stubborn inflation as the United States Federal Reserve, driven by many of the same forces: energy prices set by a war on the other side of the world, housing costs that interest rates can only slowly reach, and demand that refuses to cool. For American households, the lesson travels. When oil spikes and inflation proves sticky abroad as well as at home, central banks everywhere keep rates higher for longer, and borrowing stays expensive on both sides of the Pacific.
What happens next is genuinely open. The Board meets on 2 and 3 November, and whether the four rises delivered so far are enough — the very question Bullock posed — will be answered then. Still unknown: how much of the fuel spike fades if oil prices ease, whether the September quarter was a spike or the start of a new trend, and how the Board votes when it comes to the decision. What is known is that inflation, in the Governor's own assessment, remains far too high.
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