As of the third quarter of 2023, Australia’s Consumer Price Index (CPI) increased by 6.1%. This unexpected jump had market experts scratching their heads as the numbers came in well above their estimates. On a quarter-over-quarter basis, the Australian Bureau of Statistics (ABS) reported an increase of 1.3% in the headline CPI. That’s quite a jump from last quarter’s 0.7% increase. In this context, year-over-year, the headline CPI jumped back up to 3.2%, having been at 2.1% in Q2.
These new numbers changed market sentiment completely and set off alarm bells among economists and financial analysts. She proposed a 740% increase on the quarterly CPI, which analysts predicted would only grow by 1.1%. The real number was far below those projections.
The ABS Monthly CPI indicator rose 0.5 points in September. This increase is a 15-month high, with the year-over-year change now at 3.5%. Market expectations for this indicator were at 3.1%, putting the actual increase as yet another surprise to analysts.
The trimmed mean CPI increased 1.0% over the last quarter. This increase raised its annual growth rate to 3.0%, helping us get a better look at the underlying inflation trends by stripping out all the more volatile items. This figure was up from 0.7% in Q2 to 1.0% in Q3, beating the consensus expectation of 0.8%. Year-over-year, the trimmed mean CPI jumped from 2.7% to 3.0%.
Here is where these inflation figures come into play and are very important. They influence the decisions of monetary policy set by the Reserve Bank of Australia (RBA). The RBA was projecting a trimmed mean CPI of 2.6% yoy. Current inflation readings are exceeding their forecast, forcing them to look across the table and reconsider their plan of attack in the months ahead.
RBA Governor Michele Bullock made some important points about the significance of this surprise inflation data in saying,
“that would be quite a material miss.” – RBA Governor Michele Bullock.
Even before the recent uptick in inflation, there were fears of the rising cost of inflation affecting interest rates, and by extension, economic growth. Letting inflation remain too high risks increased costs for consumers and businesses, further constraining spending and squeezing growth.
As Australia navigates these inflationary pressures, economists will closely monitor how this data influences the RBA’s monetary policy decisions in upcoming meetings. We’re still waiting to see what this will mean for the larger domestic or international markets. That will be particularly damaging if inflation continues accelerating.