Inflation Resurgence in Australia: RBA's Rate Cycle Uncertainty

Australia: Inflation back on the rise

While this is mostly down to less helpful base effects, international energy prices and excise duty hikes, it is not safe to conclude that the RBA rate cycle has peaked.

 

In line with expectations, but more progress needed

At 5.2% YoY, the August inflation figures were bang in line with expectations. However, inflation is rising again, not falling, and the month-on-month and core inflation figures (0.69% MoM and 0.3% MoM respectively) leave no room for complacency. It is still possible that the Reserve Bank of Australia (RBA) will conclude that the trend pace of improvement in inflation is insufficiently fast and that a further hike is required. 

Base effects can take some of the blame for the rise in inflation this month. In 2022, the August CPI index rose only 0.3% MoM, so this year's August CPI was always going to have to come in low just to keep inflation steady. It didn't come in low enough. This could be a problem over the coming two months, with September and October 2022 CPI increases also just 0.3% MoM.  

Excluding volatile items, the rise in CPI was indeed only 0.3%, but with oil prices rising, and September retail gasoline prices likely to boost the transport component almost as much as it did in August, this is not going to be enough to keep inflation on a downward trend. And that sort of consecutive backsliding in inflation could be exactly the sort of condition that could pressure the Reserve Bank of Australia to respond with some further tightening. This could perhaps occur at the November meeting, after the September (and 3Q23) CPI release, or even in December, when the October inflation figures will be available. 

 

Australian CPI by major component (MoM%)

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