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MNI BRIEF: RBA 50bps Hike Odds Firm After August CPI Hits 6.8%

MNI (PERTH)
MNI (Perth)

A surge in inflation to a three decade high has firmed expectations the Reserve Bank of Australia will raise its cash rate 50bps at its Oct 4 meeting.

Monthly Consumer Price Index indicator data released by the Australian Bureau of Statistics showed headline inflation rose to 7% y/y in July - the fastest pace since 1990 - before retreating to 6.8% in August. The fall in August was due to lower fuel prices, but the reinstatement of the full fuel excise from Sep 29 will add AUD25.3 cents per litre in taxes according to the Australian Competition and Consumer Commission.

Core inflation - which excludes fuel, fruit and vegetables - quickened from an y/y pace of 5.5% in June to 6.2% in August. The ABS' new monthly CPI indicator will be released on Oct 26 and will contain updated data for September. RBA Deputy Governor Michele Bullock said on Sep 21 the Bank would not immediately look at the new monthly CPI data, saying "there needs to be a little water under the bridge with monthly numbers to see what sort of information content is in them". (See MNI BRIEF: RBA's Bullock Says Rates Not Restrictive Yet).

The headline monthly indicator excludes roughly 30% of CPI, most notably electricity and gas prices. The RBA warned in its August Statement on Monetary Policy that household electricity and gas prices are expected to increase "significantly" in the September quarter, with the bulk of the effect delayed until the December quarter. The RBA's SMP forecasts inflation to hit 7.75% by the end of the year. The RBA is expected to lift the cash rate by 50bps to 2.85% at next week's board meeting.

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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