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MNI BRIEF: Aussie 3Q CPI Shock Ups RBA Terminal Rate Forecasts

MNI (Perth)

A higher-than-expected September quarter Consumer Price Index sealed a 25bp hike at the Reserve Bank of Australia's November meeting, prompting some private sector economists to lift their terminal rates forecasts after the latest inflation data from the Australian Bureau of Statistics.

The headline CPI rose 1.8% q/q in the September quarter, driving an acceleration to a 7.3% y/y pace from 6.1% y/y rate in the June quarter. The y/y rate surpassed market expectations for a 7.1% rise. The trimmed mean rose 1.8% q/q and 6.1% y/y, up from 4.9% in the June quarter. The new monthly CPI showed a 7.3% y/y rise in September, up from 7% in August.

A 25bp hike to 2.85% is locked in for the RBA's November 1 meeting after policymakers surprised the market by downshifting to 25bps at its October meeting after four consecutive hikes of 50bp. The RBA had warned inflation would rise, though there is little sign that it has started to affect wage-setting. Deputy Governor Michele Bullock said on October 18 that the bank's monthly meetings allow it to adjust policy "potentially much faster than overseas central banks." (See MNI BRIEF: RBA Can Move As Fast As Other Banks - Bullock)

The surprisingly strong inflation print led economists to pencil in additional hikes, while some ascribed a small chance of a 50bp hike. Market pricing points to a terminal rate above 4% in late 2023. (See RBA : Sell-Side Revise Up Peak RBA Rate Forecasts In Response To Higher Inflation). MNI last week flagged the potential for an upside inflation surprise. (See MNI Insight: Upside Risks to Australian Inflation, But Will It Be Enough To Shift RBA Expectations?) The Australian dollar initially rose after the data release, trading up to around 0.64. (See AUD : Little Follow Through From CPI Beat)

Robert covers RBA and RBNZ policy and the economy for MNI in Australia.
Robert covers RBA and RBNZ policy and the economy for MNI in Australia.

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