Australia’s inflation indicator accelerated last month, led by surging fuel prices and rising rents, making it clear the battle to combat increasing household prices is not over.
The consumer price index for August came in at an annual 5.2%, according to the Bureau of Statistics, up from 4.9% a month earlier, representing the first jump in four months and erasing recent progress in bringing inflation down.
The lift in inflation will stir debate around whether another cash rate hike is required to cool inflation, although the monthly figures are volatile and monetary policymakers can overlook a spike in the oil price, if it proves to be transitory.
The Reserve Bank expects the 2-3% target inflation range will be reached by late 2025, three years after it peaked at 8.4%.
The RBA board will meet next week to make its first rates decision under new governor Michele Bullock. The board has previously flagged that the 4.1% official cash rate might need to rise further should inflation prove more persistent that expected.
Global share markets have been unsettled recently over concerns borrowing rates might need to stay higher for a prolonged period to combat stubborn inflation.
The CPI rise doesn’t represent an automatic trigger for the Reserve Bank to raise interest rates again, according to economists and analysts.
When some of the more volatile CPI components are stripped out, such as fuel, holiday travel and fruit and vegetables, the index eased to an annual rate of 5.5% in August from 5.8% a month earlier.
Tony Sycamore, market analyst at IG Australia, said the result was in line with expectations.
“Today’s inflation data won’t move the dial ahead of the October RBA meeting, where the RBA is widely expected to stay on hold,” Sycamore said.
Diana Mousina, the AMP deputy chief economist, said there was a risk of another rate rise before the end of the year.
“But for now, we expect the RBA to keep the cash rate unchanged at next week’s board meeting,” she said.
Most economists expect the RBA will wait for quarterly inflationary data and jobs figures before making a decisive decision, which pushes out a potential rate move to at least November.
Markets are pricing in a strong chance of one final hike by mid next year.
The consumer index shows how difficult rising housing costs are for tenants, with rents up 7.8% over the past year. This represents an acceleration in costs compared to previous months, showing the rental squeeze is getting worse.
Electricity and other energy bills are also still rising at an annualised double digit rate.
The ABS noted that the most significant price rises were transport (7.4%), housing (6.6%), food (4.4%) and insurance and financial services (8.8%).
A steep 13.9% increase in fuel prices over the 12 months to August underpinned the increase in transport costs. Global oil prices have been rising due to mounting worries over a supply deficit after output cuts by Saudi Arabia and Russia.
This has been reflected at the pump, with unleaded petrol prices averaging $2.11 per litre across the country last week, according to the Australian Institute of Petroleum, compared to an average $1.86 over the past year.
A persistently strong fuel price will become a headache for the RBA if it leads to cost increases in other parts of the economy, with the logistics, manufacturing and agriculture sectors among those most affected.
Growth in food prices moderated to 4.4% in August, with fruit and vegetables falling from elevated levels last year caused in part by widespread flooding.
Bread prices were up almost 14% during the past year, while cheese and other dairy products are still recording double digit price growth.
Most groceries in Australia are sold through supermarkets, which have boosted profit margins throughout the pandemic and inflationary period, representing a likely inflation trigger.
There are signs other parts of the market are normalising, which could help alleviate some pricing pressures in the economy.
James Voortman, the chief executive of the Australian Automotive Dealer Association, said the delivery time for most new vehicles was speeding up after years of lengthy delays.
“The supply situation has improved markedly in the past few months,” said Voortman.
“Customers are now in a position where they can be guaranteed the vehicles will reach them within a number of days, weeks, or possibly months, but not those very long wait times we previously had.”
The Australian dollar fell slightly after the data release, trading at just below 64 US cents.
