Australian core inflation accelerates to 3.7%, firming RBA rate-hike case

Higher crude prices are the clearest reason the headline figure overshot expectations, and Bullock tied higher energy costs directly to a worse inflation outlook only minutes before the release, so any further advance in oil strengthens the case for tightening. For markets, the core number carries the bigger message. The trimmed mean rising to 3.7% when the RBA had anticipated it would level off supports market pricing of a hike at the November 2 and 3 meeting and underpins the Australian dollar and short-dated yields. A slightly lower weighted median shaves a little off that, but not enough to alter the overall assessment. AUD/NZD traders also have the RBNZ decision at 01:00 GMT to contend with, where a widely expected hike could keep any relative move in the Aussie limited.

---

Earlier coverage:

• Oil shock has inflation tracking above the RBA's August forecasts, Bullock says, with the Board meeting next week

---

Australia's core inflation accelerated instead of flattening off, with the data arriving while Governor Bullock was telling senators that price growth was above the RBA's forecasts.

In summary:

• The Q3 trimmed mean CPI rose 1.0% quarter on quarter, matching the 1.0% forecast and up from 0.8%, while the annual rate reached 3.7%, above the 3.6% expected and the previous 3.6%.
• Q3 headline CPI climbed 1.3% on the quarter, exceeding the 1.2% forecast and accelerating from 0.6%.
• September CPI advanced 0.8% month on month, above the 0.7% expected, and 4.3% year on year against a 4.2% forecast and 4.0% previously.
• The monthly trimmed mean increased 0.3% month on month and was unchanged at 3.6% year on year, both in line with expectations.
• The Q3 weighted median rose 1.0% quarter on quarter, marginally below the 1.1% forecast, and 3.6% on the year.
• The figures coincided with Bullock's comment that inflation will likely surpass the RBA's August forecasts. The Board meets on November 2 and 3.

Australia's underlying inflation ran hotter than expected in the September quarter, with the Reserve Bank's preferred trimmed mean gauge reaching 3.7% on the year and firming the case for another rate increase when the Board meets on November 2 and 3.

The trimmed mean, a measure that removes the biggest price rises and falls to reveal the core trend, gained 1.0% in the quarter, matching forecasts and quicker than the 0.8% in the June quarter. The annual reading of 3.7% was above the 3.6% projected and the 3.6% recorded three months earlier. The quarterly pace also exceeded the roughly 0.8% that the RBA's August forecasts implied. Headline CPI rose 1.3% in the quarter, beating the 1.2% forecast and more than doubling the 0.6% increase from the June quarter.

The monthly data pointed the same way. Headline CPI rose 0.8% in September, above the 0.7% forecast, pushing the annual rate from 4.0% to 4.3%, which also exceeded forecasts of 4.2%. The monthly trimmed mean rose 0.3% as expected, holding at 3.6% year on year. The weighted median, another underlying gauge, was a touch softer, rising 1.0% in the quarter against a forecast of 1.1%.

The data emerged while RBA Governor Michele Bullock was giving evidence to a Senate committee. In her opening statement, given just ahead of the numbers, she said inflation was likely to run above the RBA's August base case because a renewed escalation of the Middle East conflict had pushed energy prices well beyond earlier assumptions and the labour market appeared a bit tighter than previously thought. She said a key question for next week's meeting is whether the 100 basis points of tightening delivered so far this year will be enough to bring inflation back to target within a reasonable time.

Today's numbers lend weight to that concern. The RBA continues to treat the quarterly trimmed mean as its main inflation gauge, and a rise in the annual rate rather than the stabilisation the bank had forecast points to price pressures spreading beyond fuel. Higher energy costs are pushing headline inflation up directly, while the stronger core print signals the same domestic capacity strains Bullock flagged.

Updated forecasts are due from the RBA alongside next week's decision, and they will show how far the inflation outlook has been revised and whether the bank sees the need for further tightening.

---

In my view, the RBA comments we have heard (the report linked above, plus Hauser and Hunter last week) along with today's data lock in a rate increase next Tuesday: