The latest Australian inflation data has solidified expectations for another interest rate hike by the Reserve Bank of Australia (RBA) on November 3. Quarterly trimmed mean inflation rose to 1.0% from 0.8% in the previous quarter, pushing the annual rate to 3.7%. This marks the fourth consecutive quarter where inflation has exceeded the RBA's 2-3% target band, with headline inflation remaining elevated at 3.9% year-over-year.
While energy prices have contributed to inflation, the issue extends beyond fuel. Non-tradables inflation stayed high at 4.5% year-over-year, services inflation at 3.8%, and housing inflation at 5.3%. However, inflation is not accelerating uniformly. Services, non-tradables, and housing inflation have moderated, while tradables inflation accelerated to 2.9% from 2.1%. This suggests that while domestic inflation pressures persist, external price pressures are also playing a significant role.
The RBA's concerns over inflation were reinforced by Governor Michele Bullock during a parliamentary hearing, who warned that inflation remained far too high. The Bank has acknowledged that inflation is likely to exceed its August projections, with persistent domestic capacity pressures compounded by higher global energy costs. The acceleration in quarterly trimmed mean inflation is particularly concerning, as it runs at a pace inconsistent with a sustained return to the RBA's target range.
Markets are now pricing over an 80% probability of a November RBA rate hike, with the Q3 inflation figures reinforcing expectations of further monetary tightening. The market-implied cash rate path shifted higher, pointing to a peak near 5% around the middle of next year. However, the broader Australian economy shows signs of weakening, with employment declining, unemployment rising to 4.7%, and consumer and business sentiment remaining subdued. The RBA faces the challenge of controlling inflation without placing unnecessary strain on the economy.