RBA’s Response to Inflation Figures

RBA (Reserve Bank of Australia) is still digesting the latest inflation data and it’s not yet clear if the figures will spur more interest rate action.

September quarter inflation data came in a little above expectation, with high prices for petrol, rent, new builds, and electricity fuelling a solid 1.2 per cent lift.

The numbers have sparked speculation the central bank’s forecasts for bringing inflation back to target within its expressed timeline are less viable.

Earlier in the week, Reserve Bank of Australia Governor Michele Bullock made it clear the board would not hesitate to act if there was a “material upward revision” to the outlook for inflation.

Speaking at a parliamentary hearing on Thursday, Ms Bullock said the central bank was still analysing the data.

“I’m not prepared to say yet whether or not it’s a material change to our forecasts, because there is going to be a change to our forecasts,” she said.

“We have to look at whether or not it’s material enough to change our views on monetary policy.”

Ms Bullock said the latest set of quarterly inflation data came in a little higher than its most up-to-date forecasts, but more or less in line with their evolving expectations that took into account higher prices at the petrol pump.

“The print came out a little higher than we’d been forecasting at our August statement on monetary policy, but it was pretty much where we thought it would come out given the information that has come in to since then, particularly the monthly CPI indicator,” she said.

September inflation figures showed a continuation of the trend towards moderating goods prices while services inflation proved more persistent, the governor said.

“When I say persistent it means that the inflation in those sorts of components of the CPI tends to last longer,” she said.

“Consistently, we’re seeing that although services inflation is declining, it’s still higher than we’re comfortable with.

” So, in a sense, it reinforced all of that for us.”

Ms Bullock said high input prices, including electricity costs, rents and wages, were keeping upward pressure on services inflation.

“We’re looking at some of the more persistent parts of inflation and asking ourselves, ‘are there signs that those might be coming down in the future?”

She said the central bank had made it “very clear that we might need to go again” despite keeping interest rates on hold since June.

Upcoming RBA Forecasts

The RBA will release a new set of forecasts after the November board meeting in the statement on monetary policy.

Treasurer Jim Chalmers said the inflation numbers would not materially change Treasury’s forecasts but the RBA would make its own assessment.

Inflation lifted 1.2 per cent over the three months to September, as captured in the Australian Bureau of Statistics’ quarterly consumer price index, up from 0.8 per cent in the June quarter.

Annual inflation moderated to 5.4 per cent from six per cent.

The central bank has kept interest rates on hold at 4.1 per cent for the past four meetings but repeatedly warned more tightening may be needed to bring inflation back to its two-three per cent target range.

The board next meets on November 7.