Quarterly Inflation Still Solid, Annual Helped By Base Effects

Q3 and September CPI printed higher than expected and has increased the risks of another rate rise in November as inflation may be moderating slower than required. RBA Governor Bullock said the board will hike again “if there is a material upward revision to the outlook for inflation”. This data is likely to result in an upward revision to near-term RBA CPI forecasts, but the key will be the outlook further out. Q2 2025 already stands at 3.1%, marginally above the top of the band.

• The continued quarterly increases above 1% in most major CPI measures will become a problem from mid-2024 if they persist, as base effects have helped the moderation in annual inflation this year.
• Headline CPI rose 1.2% q/q to be 5.4% y/y down from Q2’s 6%, helped by base effects. But it is around 0.3pp higher than the August RBA forecasts and the September reading of 5.6%, which rose for the second straight month, is 0.5pp higher. It looks like the RBA’s Q4 4.1% forecast will be revised up.
• Trimmed mean overshot consensus by 0.2pp rising 1.2% q/q with Q2 revised up 0.1pp to 1%. Underlying inflation has moderated to 5.2% from 5.9% but 0.3pp higher than the implied Q3 RBA forecast, and September’s 5.4% showed an even larger gap.

Source: MNI - Market News/Refinitiv

• The share of components rising +2.5% rose to 82% in Q3 up from 73% but still below the 91% peak, but well above 50%.
• Auto fuel, rents and electricity were the main contributors to Q3 inflation. The 2.2% rent rise was eased by the 15% increase in government rent assistance, which the ABS said detracted 0.3pp from rents. Electricity prices rose 4.2% but would have been 18.6% without government relief.
• Childcare fell 13.2%, the “largest contributing fall”, due to an increase in government subsidies. Without that it would have risen 6.7%.