The consumer price index (CPI) rose 1.8 per cent during the September quarter and 7.3 per cent annually, according to the latest data from the Australian Bureau of Statistics (ABS).
The annual lift in inflation was the highest since 1990 following strong rises over the past four quarters on the back of higher prices for new dwelling construction, automotive fuel and food.
Markets had been expecting a quarterly rise of 1.6 per cent and an annual lift of 7.0 per cent.
“This quarter's increase matches that of last quarter and is lower than the 2.1 per cent result in March quarter this year,” said ABS program manager of prices, Michelle Marquardt.
“All three results exceed any other quarterly results since the introduction of the Goods and Services Tax (GST), and underlie the highest annual increase in the CPI since 1990.”
AMP chief economist, Dr Shane Oliver told InvestorDaily that the higher than expected lift in inflation would maintain high pressure on the Reserve Bank (RBA).
“It’s inevitable that they’re going to raise interest rates again next month, that would’ve happened anyway, but it increases the risk that it will be back to a 0.5 per cent hike,” he said.
However, Dr Oliver argued that “common sense” would suggest that the RBA will deliver another 25 basis point (bp) lift as it did in October.
“Inflation is a lagging indicator and, with the economy set to slow quite substantially, doing a 0.5 [hike] and aggressively raising rates after that just adds to the risks in the economy.”
Meanwhile, VanEck portfolio manager, Cameron McCormack, suggested that the higher than expected inflation result reinforced the need for the RBA to continue hiking the cash rate “well into the first half of 2023”.
“We expect a 50 basis point increase in November, 25 bps in December, with the cash rate reaching 3.60 per cent by year's end,” he said.
According to the ABS, the most significant contributors to the inflation rise in the last quarter were new dwellings (up 3.7 per cent), gas (up 10.9 per cent) and furniture (up 6.6 per cent).
Annually, new dwellings (up 20.7 per cent) and automotive fuel (up 18.0 per cent) were reported to be the most significant contributors.
But, according to Dr Oliver, one piece of good news in the latest inflation data is that the bulk of the rise in inflation is driven by goods rather than services.
“We know that goods' price pressures globally — at least in the US — are starting to slow a bit, but obviously it’s probably six months or so before that reaches Australia,” he explained.
The price of goods increased 9.6 per cent annually, the biggest lift since 1983 and above the 4.1 per cent increase seen for services.
Annual trimmed mean inflation rose to 6.1 per cent, up from 4.9 per cent in the June quarter, to reach the highest level since the ABS first published the series in 2003.
According to the federal budget delivered by Treasurer Jim Chalmers on Tuesday, annual CPI inflation is expected to peak at 7.75 per cent in late 2022, before moderating gradually to 3.5 per cent by June 2024 and returning to the RBA’s inflation target by 2024–25.
Despite Wednesday's surprising inflation data, Dr Oliver expects that the government's predicted 7.75 per cent roof is still on track.
Jon Bragg is a journalist for Momentum Media's Investor Daily, nestegg and ifa. He enjoys writing about a wide variety of financial topics and issues and exploring the many implications they have on all aspects of life.