Australia trimmed mean CPI rises to 3.7%, above forecasts, as RBA hike case firms

Oil is the clearest driver of the headline beat, and Bullock tied higher energy prices directly to a worse inflation outlook only minutes before the release, so any further rise in crude adds to the case for tightening. The bigger signal for markets is the core reading. A trimmed mean that rose to 3.7%, when the RBA had expected it to stabilise, supports pricing for a hike on November 2 and 3, and backs the Australian dollar and front-end yields. The slightly softer weighted median takes a little off that, but not enough to change the overall message. AUD/NZD traders also face the RBNZ decision at 01:00 GMT, where a widely expected hike could limit any relative move in the Aussie.

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Earlier:

• RBA’s Bullock: oil shock means inflation above August forecasts, Board meets next week

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Australia’s core inflation picked up instead of levelling off, landing just as Governor Bullock was telling senators that inflation is running above the RBA’s forecasts.

Summary:

• Q3 trimmed mean CPI rose 1.0% q/q (expected 1.0%, prior 0.8%) and 3.7% y/y (expected 3.6%, prior 3.6%).
• Q3 headline CPI rose 1.3% q/q, above the 1.2% forecast and up from 0.6%.
• September CPI rose 0.8% m/m (expected 0.7%) and 4.3% y/y (expected 4.2%, prior 4.0%).
• The monthly trimmed mean rose 0.3% m/m and held at 3.6% y/y, both in line with forecasts.
• The Q3 weighted median rose 1.0% q/q, slightly below the 1.1% forecast, and 3.6% y/y.
• The data came as Bullock said inflation will likely exceed the RBA’s August forecasts. The Board meets on November 2 and 3.

Australia’s underlying inflation rose more than expected in the September quarter, with the Reserve Bank of Australia’s preferred trimmed mean measure climbing to 3.7% year on year, strengthening the case for another rate hike when the RBA Board meets on November 2 and 3.

The trimmed mean, which strips out the largest price rises and falls to show the core trend, rose 1.0% in the quarter, in line with forecasts and up from 0.8% in the June quarter. The annual rate of 3.7% was above both the 3.6% expected and the June quarter’s 3.6%. The quarterly pace also ran ahead of the roughly 0.8% implied by the RBA’s August forecasts. Headline CPI rose 1.3% in the quarter, above the 1.2% forecast and more than double the 0.6% rise in the June quarter.

The monthly figures pointed in the same direction. Headline CPI rose 0.8% in September, above the 0.7% forecast, lifting annual inflation to 4.3% from 4.0% and above expectations of 4.2%. The monthly trimmed mean rose 0.3%, in line with forecasts, holding at 3.6% year on year. The weighted median, another underlying measure, was a little softer, rising 1.0% in the quarter against a forecast of 1.1%.

The data landed while RBA Governor Michele Bullock was appearing before a Senate committee. In her opening statement, delivered shortly before the release, she said inflation was likely to run higher than the RBA’s August base case, as the re-escalating Middle East conflict has pushed energy prices well above earlier assumptions and the labour market appears a little tighter than previously judged. She said a key question for next week’s meeting is whether the tightening delivered so far, 100 basis points this year, will be enough to bring inflation back to target in a reasonable time.

Today’s figures add weight to that concern. The RBA still uses the quarterly trimmed mean as its main gauge of underlying inflation, and a rise in the annual rate, rather than the stabilisation the central bank had forecast, suggests price pressures are broadening beyond fuel. Higher energy costs are lifting headline inflation directly, while the firmer core reading points to the domestic capacity pressures Bullock highlighted.

The RBA will publish updated forecasts alongside its decision next week, which will show how far it has revised its inflation outlook and whether it sees the need for further tightening.

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I think the comments from the RBA we've head (see link above as well as Hauser and Hunter last weekalong with today's data locks in a rate hike next Tuesday: