Earlier this week, the first complete monthly print of CPI showed headline inflation rose by 3.8 per cent in October from 3.6 per cent in the previous month, higher than economists had predicted.
Trimmed mean inflation rose from 3.2 per cent year-on-year in September to 3.3 per cent year-on-year in October.
While welcoming the move to more timely monthly reports – rather than partial monthly data – economists acknowledged the monthly print will face short-term challenges especially as 44 of the 87 components in the CPI basket are not a long enough monthly time series to allow proper seasonally adjustment of the figures.
For this reason, it is understood the RBA is currently going to continue to focus on the quarterly underlying CPI inflation print and on year-on-year rates of growth for now but will eventually transition away to focus on the new monthly version in due course as more data is accumulated.
But turning to this week’s print, Bloxham said this week’s inaugural figures should be “concerning” for the central bank when it comes to future monetary policy activity.
“They show that core inflation is above the target band and appears to have moved higher in October. To us, they add one more incremental piece of evidence to suggest that the RBA will be unable to cut its cash rate further in this cycle.
“A debate can be had about whether the RBA has already cut its cash rate too far.”
Rates have moved from 4.1 per cent in February 2025 to 3.6 per cent as of November with rate cuts of 0.25bps in February, May and August with one more meeting due to take place in December. This is far more active than the RBA was during 2024 when no rate movements were enacted.
Bloxham initially forecast the RBA would hold rates through 2026 with rate hikes then beginning in early 2027 but the new monthly inflation data meant rate hikes could be needed earlier than this.
“Core inflation is above the RBA’s 2-3 per cent target band and rising, supporting our view that the RBA’s next move is more likely to be up than down,” he concluded.
