Stock Groups

Australia core inflation speeds to 6-yr high in Q3, feeds rate fever -Breaking

[ad_1]

© Reuters. FILEPHOTO: A silhouette of people is seen against the Sydney Opera House, Australia, at sunset on November 2, 2016. REUTERS/Steven Saphore

Wayne Cole

SYDNEY (Reuters – Australian core inflation accelerated at its highest annual rate since 2015 during the September quarter. This is due to price increases becoming more wide-based. Markets bet heavily that earlier interest rate rises will continue to increase.

According to data from the Australian Bureau of Statistics, Wednesday’s headline consumer price index rose 0.8% during the third quarter of 2013 and 3.0% over the whole of the year. Much more than was expected.

The Quarterly Core Inflation Measure (RBA) was 0.7% higher than expected.

It accelerated at 2.1% annually, which is well over the 1.8% expectation. This puts it back within the RBA’s 2 to 3 percent target range for first time in six year.

According to the central bank, core inflation was not expected to reach 2% by mid-2023. Cash rates were forecasted at 0.1% through 2024.

Markets that had believed the RBA was ahead of the inflation curve were only encouraged by the data. They will have to tighten sooner, possibly in July 2013.

Investors quickly reacted and dumped shorter-dated bonds of three-year futures, sliding 16 ticks down to 98.870. This is the lowest level since June 2019 with a yield equaling 1.13%.

Zinc yields for April 2024’s key bond rose to 0.21%. This is a significant challenge to RBA, who has committed to maintaining it at 0.1% cash.

Local dollar reached $0.7535, and threatens to take back a four-month high of $0.7546.

Capital Economics’ economist Ben Udy stated that the RBA will be under pressure to reduce monetary stimulus over the coming months because of the strong increase in underlying inflation.

He did however believe that wage growth would have to rise above 3% before policymakers could consider a rate increase.

Philip Lowe (RBA Governor) has repeatedly stated that Australia’s inflation is inertia due to low wage growth.

Inflation remained at 2% for the past year, with wage growth of 1.7%. This is well below the RBA’s recommended 3%+ levels.

However, the upside is still possible.

After years of stagnation, petrol prices continue to rise and have reached record levels at the pumps. Rents are also rising. The pandemic, weather-driven catastrophes and rising health and insurance prices have pushed up the costs of healthcare and insurance. Meanwhile, the media warns against stagflation due to global supply shortages.

Expectations of price rises will be fuelled by rising house prices, and consumer anxiety about living costs.

A survey by ANZ measuring inflation expectations reached a peak of 5% for six years last week. This could lead to economic slowdown if it continues.

Ryan Felsman is a Senior Economist at CommSec. He stated that rising inflation expectations by consumers could dampen household confidence and make them less likely to spend short-term. This would delay big-ticket purchases.

Disclaimer Fusion MediaThis website does not provide accurate and current data. CFDs are stocks, indexes or futures. The prices of Forex and CFDs are not supplied by exchanges. They are instead provided by market makers. As such, the prices might not reflect market values and could be incorrect. Fusion Media is not responsible for trading losses that may be incurred as a consequence of the use of this data.

Fusion MediaFusion Media and anyone associated with it will not assume any responsibility for losses or damages arising from the use of this information. This includes data including charts and buy/sell signal signals. You should be aware of all the potential risks and expenses associated with trading in the financial market. It is among the most dangerous investment types.

[ad_2]