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

After today’s higher-than-expected Australian inflation data, we look at the details of the report and don’t expect them to be enough to shift the RBA back to a 50bp tightening pace. The cycle is likely to be extended into 2023 instead.

• 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.
• 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 it could “draw out policy adjustments” which would “help to keep public attention focused for a longer period” on the Board’s determination to return to price stability.
  • Deputy Governor Bullock commented recently that the RBA has more meetings than other central banks and so can do less per meeting but achieve the same result.
  • Many of the reasons for pivoting haven’t changed, such significant uncertainties, lags involved, considerable tightening this year and wages consistent with the target.
• Read MNI Insight: Australian Q3 CPI Beat Sees TIghtening Cycle Extend Into 2023 here.