Australian inflation accelerates in September, lifting bets on another RBA hike

what happened

Australia's consumer price inflation stayed elevated in September, according to Update. Prices rose 4.3% from a year earlier, up from 4.0% in August. The trimmed mean measure, which the central bank watches closely, climbed to 3.6% from 3.5%. The Australian Bureau of Statistics released the figures on Wednesday.

Before the report, money markets priced in a 60% chance of another rate increase. After it, bets on a hike at next week's meeting rose to 82%. RBA Governor Michele Bullock told a parliamentary committee: "Inflation is far too high." She said the economy remained capacity constrained and demand needed to cool further to return to the 2.5% target.

why it matters

A fifth rate increase this year would mark a notable tightening step. Higher rate expectations typically support the Australian dollar and weigh on rate-sensitive assets, including housing. Bullock also acknowledged that only a small number of home buyers have seen values fall below purchase prices, while economists expect national home prices to drop more than 10% from peak to trough.

market impact

AUD/USD: firmer RBA policy expectations support the Australian dollar; housing market under pressure

• ▲AUD/USD pressure up — higher expectations for an RBA rate hike boost the appeal of Australian assets
• ▼ASX 200 pressure down — higher rates restrain consumer spending and weigh on the housing market

tags

instruments