Inflation spike on the cards despite energy rebates
Inflation could rise to a 16-month high when the Australian Bureau of Statistics releases its eagerly awaited “full” monthly consumer price index.
While the consensus among forecasters is for the annual headline inflation rate to remain steady at 3.5 percent, some economists and Chancellor of the Exchequer Jim Chalmers are bracing for a rise when the data is released on Wednesday.
Westpac economists predict that the index will increase by 0.1 percent for October. However, breaking the 0.3 percent decline in October 2024 out of the series would cause the annual figure to rise to 3.9 percent, the highest level since June 2024.
Compared to the same period the previous year, a smaller decline in electricity, a stronger increase in housing, a smaller decrease in rents and an increase in holiday travel and accommodation are forecast.
Commonwealth Bank senior economist Trent Saunders predicted a milder rise to 3.6 per cent.
“The decline in electricity and fuel prices are the main factors of the decline in the month. While market services inflation is also expected to slow down slightly, rents and new home price inflation are expected to remain strong,” he said.
This will be of particular interest to the Reserve Bank of Australia.
After leaving the cash rate steady at 3.6 per cent on Melbourne Cup day, RBA governor Michele Bullock said the bank thought the rise in inflation in the September quarter was largely due to temporary factors.
However, he noted that there are some “signals” in the housing and services inflation data that may indicate that inflation is becoming more robust.
Mr Saunders expected housing inflation to fall by 0.4 per cent in the quarter, driven by increases in electricity subsidy payments in NSW, ACT and WA during the month.
“Market services inflation is somewhat difficult to measure this month, given the limited experience with monthly data for these categories,” he said.
“However, these prices will be watched closely following the strong rise in the September quarter.”
Clearly the treasurer isn’t listening to Mr. Saunders. He pointed out that one of the areas that could increase inflation is electricity.
Dr. “Economists expect that the easing of some state energy rebates will push the headline figure slightly higher tomorrow, and so they have encouraged us to focus largely on the underlying figure,” Chalmers said during question time in the parliament building on Tuesday.
Other economists predict inflation will fall.
ANZ’s Adelaide Timbrell expects a headline figure of 3.3 per cent, but said the bank’s forecasts were less precise because it would be the first time the ABS would publish a full-month CPI report, so forecasters would not be able to compare some items with previous months.
Regardless, Ms Timbrell said the RBA board was unlikely to give too much weight to the outcome at its next interest rate meeting, given they would place more emphasis on the quarterly inflation statement until seasonal gremlins were cleared from the new release.
ABS chief statistician David Gruen said the release was a “major milestone for Australia”.
“The full monthly CPI will enable earlier detection of changes in inflation and better inform policy decisions affecting all Australians,” he said.
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