Inflation rose by 4.9 per cent in the year to October, according to the latest monthly consumer price index (CPI) indicator released by the Australian Bureau of Statistics (ABS) on Wednesday.
The October CPI indicator was under market expectations for a 5.2 per cent lift and was down from 5.6 per cent in the 12 months to September.
The ABS reported that the most significant contributors to the increase in October were housing (+6.1 per cent), food and non-alcoholic beverages (+5.3 per cent), and transport (+5.9 per cent).
“CPI inflation is often impacted by items with volatile price changes like automotive fuel, fruit and vegetables, and holiday travel. It can be helpful to exclude these items from the headline CPI to provide a view of underlying inflation,” commented ABS acting head of prices statistics Leigh Merrington.
“When excluding these volatile items from the monthly CPI indicator, the annual rise in October is 5.1 per cent, lower than the annual rise of 5.5 per cent in September.”
Prior to Wednesday’s data release, ANZ senior economist Catherine Birch warned that the October monthly indicator would not accurately reflect domestically driven and services inflation, which RBA governor Michele Bullock has indicated is driving inflation in Australia.
“Prices for around 54 per cent of services and 44 per cent non-tradables by weight in the CPI basket will be held constant in October (as is usual in the first month of every quarter),” Ms Birch explained.
“The expected weak October result does not mean Q4 CPI will print in line with or below the RBA’s 1.0 per cent q/q forecast. The November data, due 10 January, will be a better signal as it will capture prices for larger shares of non-tradables and services.”
Commonwealth Bank economist Stephen Wu noted that recent monetary policy decision communications have been at least partly influenced by the monthly CPI indicator.
“This includes when the RBA left the cash rate unchanged in April (after a soft February CPI indicator),” he pointed out in a note last week.
“Worried about an unanchoring of inflation expectations, the RBA has very little tolerance for any further upside surprises to the inflation outlook. So key to near-term monetary policy outlook is the path of inflation over the final few months of this year.”
But like ANZ, Mr Wu added that the key drawback of the monthly CPI indicator is that not all items are measured in each month.
As at 28 November, the ASX 30 Day Interbank Cash Rate Futures December 2023 contract was trading at 95.66, indicating a 10 per cent expectation of an interest rate increase to 4.60 per cent at the RBA’s next board meeting on 5 December.
