Australia Q3 inflation surprisingly strong, adds to rate hike risk
By Stella Qiu
SYDNEY (Reuters) -Australian inflation was surprisingly strong in the third quarter amid broad-based and stubborn cost pressures, a headache for policymakers that added greatly to the risk of a rise in interest rates as early as next month.
Investors reacted by narrowing the odds on the Reserve Bank of Australia (RBA) restarting the tightening cycle next month after four months of pauses, with futures now pricing in a 66% chance of a quarter-point hike to 4.35%, compared with 35% before the data.
Data from the Australian Bureau of Statistics on Wednesday showed the consumer price index (CPI) rose 1.2% in the third quarter, above market forecasts of 1.1% and up from a 0.8% increase the previous quarter.
The annual pace of inflation slowed to 5.4%, from 6.0%, but was again above forecasts of 5.3%. For September alone, the CPI rose 5.6% compared to the same month a year earlier, up from 5.2% in August.
A closely watched measure of core inflation, the trimmed mean, rose 1.2% in the third quarter, to top forecasts of 1.1%. The annual pace slowed to 5.2%, from 5.9%.
The Australian dollar rose 0.6% to a week high of $0.6398 and three-year bond futures tumbled 15 ticks to 95.68, the lowest since 2011. Markets are now seeing rates peaking at 4.45% early next year, up from 4.35% before the data release.
Adam Boyton, head of Australian research at ANZ, now sees a quarter-point hike from the RBA next month, given the uncomfortably high inflation and the recent hawkish guidance from policymakers.
«While 4.35% should mark the peak in the cash rate, there is a risk it could tighten beyond that. Any easing remains a very long way off,» Boyton said.
The biggest contributors to the third quarter inflation were fuel, rents,
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