Australia's September Inflation Accelerates, Markets Bet on Another RBA Rate Hike

what happened

Australia's inflation stayed elevated in September, supporting the Reserve Bank of Australia's (RBA) concern that price pressures have grown materially worse. The Australian Bureau of Statistics said consumer prices rose 4.3% from a year earlier, up from 4.0% in August. The trimmed mean measure, which the RBA watches most closely, edged up to 3.6% from 3.5%.

Dow Jones Newswires reports that money market traders had priced in a 60% chance of a further rate increase before the release. After the data, bets on a hike rose to 82%. RBA Deputy Governor Andrew Hauser told a parliamentary hearing that “inflation is too high.” The central bank has pointed to rising fuel prices, heavy investment in artificial intelligence and weak national productivity as factors keeping inflation up.

why it matters

For markets, this signals that the RBA is prepared to keep tightening, which would be its fifth rate increase this year. Expectations of higher rates tend to support the national currency and weigh on bonds, since yields rise when prices fall. Economists also expect national home prices to fall more than 10% from peak to trough, adding risk to the property market.

market impact

AUD/USD: expectations of tighter RBA policy support the Australian dollar; bonds under pressure

• ▲AUD/USD pressure up — expectations of a higher RBA rate support the Australian dollar
• ▼Australian government bonds pressure down — higher rate expectations lift yields and lower bond prices

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