Inflation jumps to 3.2%, dashing hopes of a Melbourne Cup overnight rate cut for homeowners

Inflation rose from 2.1% in June to 3.2% in the year to September, as declining government subsidies feed through to higher household energy bills.

Any lingering chance of a rate cut next Tuesday – or this year – was crushed after new Australian Bureau of Statistics data also confirmed the first rise in underlying inflation in almost three years.

The average benchmark used by the Reserve Bank – which removes the impact of large, temporary price movements – rose 1% in the three months to September, well above the RBA’s forecast rate of 0.6%.

_{Sign up: AU Breaking News Email}

As a result, inflation according to this reduced average benchmark over the year remained at 3%, compared to 2.7% in June.

It was the first rise in underlying inflation since late 2022 and will set alarm bells ringing at the central bank ahead of the two-day Monetary Policy Council meeting on Monday.

Predictions for a fourth rate cut will likely be postponed until 2026.

The ABS said the main contributor to the annual inflation rate was a 24% increase in electricity prices.

This was “mainly due to households in Queensland, Western Australia and Tasmania having higher out-of-pocket costs” than the same period last year, the ABS said.

Gasoline prices have fallen, but there is ample evidence that the cost of living continues to rise.

Groceries were up 3.1% in the year to September, including a 15% rise in coffee, tea and cocoa prices thanks to problems with foreign suppliers of coffee beans.

Michele Bullock, the RBA governor, made it clear this week that a 0.9% quarterly rise in underlying inflation would be a “material miss”, indicating the monetary policy board would be unwilling to make a fourth rate cut.

While Australians will feel the impact of higher electricity prices, what is more worrying for the central bank is the unexpected and unwanted rise in underlying inflation.

Bullock made clear this week that the central bank is more concerned for now about the prospect of resurgent inflation than about a recent rise in unemployment.

Bullock said the labor market was not about to “fall off a cliff” and that the unemployment rate was “still pretty low.”