Higher than expected inflation raises spectre of interest rate hike

THE Reserve Bank of Australia faces growing pressure to raise interest rates again on November 3 after core inflation climbed one per cent in the latest quarter.

The September quarter increase in the trimmed mean was in line with economist expectations but exceeded the central bank's forecast for a 0.8 per cent increase.

On an annualised basis, the quarterly trimmed mean rose from 3.6 to 3.7 per cent, higher than expected.

§ Markets lift bets on a November rate hike

"This is an ugly number for the RBA and significantly strengthens the case for another rate hike next week," said Marc Jocum, senior investment strategist at ETF provider Global X.

Market pricing for a November rate hike climbed from about 60 per cent ahead of the data release to about 80 per cent following, Jocum said.

Headline inflation was also hotter than the market expected, at 1.3 per cent over the quarter.

§ RBA officials say inflation is too high

Markets had upped their bets for a fifth hike in 2026 on Melbourne Cup day after hawkish remarks in the past week from RBA deputy governor Andrew Hauser and chief economist Sarah Hunter.

Appearing alongside Hunter, governor Michele Bullock and other top officials at a Senate estimates hearing as the data was published by the Australian Bureau of Statistics on Wednesday, Hauser said the result was expected.

"These numbers are broadly in line ... with the market expectations and, candidly, where we thought it would be as well," he said.

"But these are too high. We have said that repeatedly, and I'm sure that we will say that again today."

Elevated underlying inflationary pressures were a sign the labour market was still tight, Bullock told the hearing.

"The Monetary Policy Board will meet next week," she said.

"We'll discuss our assessment of the flow of data and how the risks are unfolding. A key question is whether the tightening in monetary policy to date will be sufficient to bring inflation back to target in a reasonable time."

§ Oil prices and government spending blamed for inflation

Treasurer Jim Chalmers said the inflation data was still higher than the government would like.

"We've seen higher oil prices driving higher inflation around the world and today's figures confirm we are not immune from that," he said in a statement.

"From an economic point of view, the conflict can't end soon enough."

Shadow treasurer Tim Wilson said government spending had been been the key driver of the elevated core inflation or underlying inflation.

"That's why interest rates keep going up," he told News24.

"Until you contain government spending, Australians will pay more on their mortgages and go to the supermarket and pay more and get less."

§ Housing and transport lead annual inflation

Monthly headline inflation rose 4.3 per cent on an annual basis, up from four per cent in the 12 months to August.

"Housing was the largest contributor to annual inflation in September, rising by 5.2 per cent," ABS head of price statistics Rachael McCririck said.

Transport was the second largest contributor, rising by 8.7 per cent annually, due to higher fuel costs.