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Inflation jumps as banks predict a November rate hike

Borrowers could be in for a Melbourne Cup day rate hike according to the major banks, with the latest inflation data suggesting the Reserve Bank of Australia (RBA) might have more work to do.

CBA, ANZ and NAB have predicted the RBA will raise the cash rate 0.25 percentage points at the November 7 meeting.

According to the latest data from the Australian Bureau of Statistics (ABS), the Consumer Price Index (CPI) rose 1.2 per cent in the September 2023 quarter, and 5.4 per cent annually, in a move that surprised many experts.

The 1.2 per cent increase in the September quarter was up from 0.8 per cent over the prior period and suggests inflation is again taking hold.

CBA’s Head of Australian Economics, Gareth Aird said the data was stronger than their previous predictions and the odds now favour a RBA hike.

“We ascribe a 70 per cent chance to a 25bp rate increase in November and a 30 per cent chance to on hold,” Mr Aird said in a note.

“Of course, a rate hike in November is not guaranteed. 

“And the board may judge that keeping policy on hold for another month is the appropriate response while it gathers more information on the economy.”

The most significant contributors to the jump in inflation in the September quarter were automotive fuel (7.2 per cent), rents (2.2 per cent), new dwellings purchased by owner-occupiers (1.3 per cent) and electricity (4.2 per cent).

Automotive fuel rose 7.2 per cent after two-quarters of price falls, marking the largest quarterly rise in fuel prices since March 2022.

While rents rose 2.2 per cent, following a 2.5 per cent rise in the June quarter, with rental price growth for units continuing to outpace price growth for houses.

Earlier this week, in her first speech as RBA Governor, Michele Bullock said the board would “not hesitate to raise the cash rate further if there is a material upward revision to the outlook for inflation”.

Money markets are also now pricing a 60 per cent chance of a rate hike, up from 40 per cent before the release of the inflation data. Research Director, Sally Tindall said borrowers needed to prepare their budget for a 13th rate hike, because the odds of one occurring had increased.

“Governor Bullock has re-confirmed the board is prepared to hike the cash rate if required,” Ms Tindall said.

“The big question is whether the lacklustre inflation figures are enough to throw the central bank’s forecasts off course.”

She said Australia had made significant progress in the war against inflation, but there had been a number of bumps in the road.

“It’s not surprising to see both CBA and ANZ change their November cash rate prediction to a rate hike on the back of this troubling data,” she said.

“A rate hike in November is by no means a done deal, but borrowers should start preparing nevertheless.

Real Estate Institute of Australia President, Hayden Groves said with CPI having peaked late last year, as was forecast by the RBA and trending down, it was time keep rates on hold and wait for further economic data.

“Spending is declining and real household disposable incomes have been cut,” Mr Groves said.

“Even though the unemployment rate for September remained unchanged at 3.6 per cent, monthly hours worked decreased and full-time employment decreased, with 53,200 full-time jobs being lost since June. 

“We need to avoid the serious risk of stalling the economy.”

Master Builders Australia Chief Executive Officer Denita Wawn said housing costs remained a significant source of inflationary pressure.

“Rental prices are up by 7.6 per cent over the past year – close to a 15-year high,” Ms Wawn said.

“The rental market continues to be hurt by a prolonged drought in new apartment building and the negative consequences of rising interest rates.

“There was a 4.9 per cent increase in new home prices over the past 12 months.

“Housing costs have a major impact on wages and costs right across our economy.”

Ms Wawn said until governments improve the approval process for new builds, builders would struggle to keep up with supply, leading to more inflationary pressures.

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Rowan Crosby

Rowan Crosby is a senior journalist at Elite Agent specialising in finance and real estate.