Australia’s stubborn inflation raises prospect of another rate rise
Australia’s underlying inflation rose faster than expected in the September quarter, strengthening expectations that the Reserve Bank may raise interest rates again next week. The figures suggest price pressures remain difficult to contain, adding to mortgage costs for homeowners and challenging earlier claims that inflation had largely been brought under control.
The Reserve Bank’s preferred trimmed mean measure increased 1 per cent over the quarter and reached 3.7 per cent annually, above its 2 to 3 per cent target. Housing costs were the largest annual contributor, rising 5.2 per cent, while transport prices rose 8.7 per cent; fuel climbed 9.4 per cent in September. Markets put the chance of a fifth rate increase this year at more than 60 per cent.
In short
- Underlying inflation rose to 3.7 per cent annually.
- Housing and transport were major contributors.
- Markets see a strong chance of another rate rise.
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The case for
A further rate rise could help bring persistent inflation back within the Reserve Bank’s target, protecting households’ purchasing power and supporting confidence that prices will stabilise. With underlying inflation still above target and rising faster than expected, acting now may reduce the risk that price pressures become harder to contain later.
The case against
Another rate rise would add to mortgage costs for households already facing steep housing and transport expenses, and could weaken spending and economic activity. Since rate changes take time to affect prices, holding rates steady could allow the Bank to assess whether earlier increases are working before imposing further strain.
Explained simply
Australia’s Reserve Bank sets the country’s official interest rate, which influences borrowing costs across the economy. It aims to keep inflation—the pace at which prices rise—within a target range of 2 to 3 per cent over time.
The trimmed mean is a measure that reduces the effect of unusually large price rises or falls, helping the bank judge underlying trends. Housing and transport costs are among the expenses households face directly, while changes in interest rates can affect mortgage repayments and business borrowing.
The bank must weigh the risk that persistent price rises become harder to control against the effect higher rates can have on households and economic activity. Its decisions matter to borrowers, savers, businesses and the wider cost of living.
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Originally published by Daily Mail as “Aussie homeowners brace for more mortgage pain as inflation accelerates again”.