MNI Insight: Australian Q3 CPI Beat Sees Tightening Cycle Extend Into 2023

Executive Summary:

• Q3 Australian headline CPI data came in higher than expected but in line with the previous month but the trimmed mean underlying measure not only was higher than expected but also up on Q2 (1.8% q/q and 6.1% y/y, a new series high). Inflation momentum also remains strong. The proportion of major sub-indices with inflation stronger than 2.5% y/y (the mid-point of the RBA’s target band) rose to over 90%, fresh highs back to the early 2000s.
• Still, this data is unlikely to be high enough to push the RBA off its 25bps hiking pace, but it now looks likely to extend its tightening cycle into 2023.
• RBA commentary also points in the direction of a 25bps move rather than 50bps on November 1. In the October minutes, the Board said that one reason the pace of tightening was slowed was that it would be “drawing out policy adjustments” which could “help to keep public attention focused for a longer period” on the Board’s determination to bring inflation back to target. Deputy Governor Bullock also commented recently that the RBA has more meetings than other central banks and so can do less per meeting but achieve the same result. Also, many of the reasons for pivoting haven’t changed, such as global and domestic uncertainties, the lags involved, considerable tightening this year and wages still being consistent with the target.
• For the full piece, see here:AU CPI (Oct 26) final.pdf