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Worrying Rising Underlying Inflation Trends, 25bp For Now


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. This data is unlikely to be high enough to push the RBA off of its 25bp hiking pace but it now looks likely to continue into 2023. But with underlying and domestically-driven inflation pressures rising, the RBA will be looking closely at upcoming inflation trends.

  • Headline CPI rose 1.8% q/q and 7.3% y/y, to be the highest since mid-1990, after 1.8% q/q and 6.1% y/y in Q2. It was expected to go to 7% y/y. Quarterly inflation was driven by new dwellings (+3.7%), gas (+10.9%) and furniture (+6.6%). September CPI was up 0.6% m/m and 7.3% y/y, which was a pick-up in pace from August.
  • Rising prices of new dwellings were caused by increased labour costs because of the continuing lack of workers and shortage of materials.
  • Measures of underlying inflation are concerning. The Q3 trimmed mean rose 1.8% q/q and 6.1% y/y, a new series high. CPI ex food and energy, which has a longer history rose 6.5% y/y, the highest in 32 years. The monthly trimmed mean measure showed that September core inflation was 5.4%y/y (+0.4%m/m) after 5.2%y/y in August. The 3-month measure of momentum also increased further in September.
  • Q3 non-tradeables inflation rose a very strong 2%q/q and 6.5% y/y after 1.4%q/q and 5.3%y/y in Q2, pointing to a worrying pick up in domestically driven inflation.
Monthly CPI y/y%

Source: MNI - Market News/ABS

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