What does the latest inflation data mean for interest rates?
The price of household goods and services has picked up over the last year, according to new quarterly inflation data released by the Australian Bureau of Statistics (ABS) this morning.
In the 12 months to September the Consumer Price Index (CPI) rose 3.2%.
This was above the annual rate of 2.1% recorded in the June quarter and a reversal of the downward trend witnessed over the past year.
"This is the highest annual inflation rate since the June 2024 quarter when annual inflation was 3.8%," says Michelle Marquardt, head of prices statistics at the ABS.
Trimmed mean inflation - which excludes the most volatile items in the Bureau's basket of goods and services - also ticked up, coming in at 3% over the 12 months.
Electricity costs shoot up
The largest contributor to both the rise in quarterly and annual inflation was electricity.
Over the 12 months to September electricity prices increased by nearly 24%, while during the September quarter they rose by 9%.
The significant annual rise was, according to the ABS, largely influenced by the discontinuation of electricity rebates provided to households by state governments.
For instance, the ABS says that in the September quarter of 2024, rebates of up to $1000 in Queensland, $400 in Western Australia and $250 in Tasmania were still in place.
Marquardt also noted that food inflation has continued to be elevated over the past year, driven by higher prices for takeaway food and meals eaten out.
"Other notable price rises over the past 12 months included the 14.6% rise for coffee, tea and cocoa. This reflects lower supply from major overseas suppliers of coffee beans."
November rate cut all but ruled out
One organisation that will be scrutinising the inflation data more than most is the Reserve Bank (RBA).
The RBA Monetary Policy Board will convene next week for its November meeting before handing down its cash rate decision on Tuesday afternoon.
Before today's inflation data was released, markets put the chances of a 25-basis-point rate cut at 39%.
Given that inflation came in much hotter than anticipated and that the trimmed mean figure is now at the very top of the RBA's 2-3% target band, it's safe to say that expectations of a cut will fall though.
Devika Shivadekar, economist at RSM Australia, says that anyone hoping to see a rate reduction next Tuesday is likely to be left disappointed.
"This renewed momentum is likely to catch the RBA's attention, and we expect it will prompt them to hold rates steady at next week's meeting.
"With the downward trend in inflation significantly reversed, RBA policymakers are likely to be increasingly cautious about the potential for a rapid deterioration in the labour market and a sharp rise in unemployment in the coming months."
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