Inflation still too high for the RBA

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Carrington Clarke (0:48)

Well fresh inflation figures from the Australian Bureau of Statistics give us a look under the hood of an economy running hot. So just what is keeping inflation higher than the RBA would like? And how does this fresh data affect the odds of a further hike in November? Welcome to ABC Business Daily.

I'm Carrington Clarke.

Paul Bloxham (1:10)

And I'm Paul Bloxham. It's great to be here. I'm from HSBC and I'm their Chief Economist. I cover Australia and New Zealand and Global Commodities.

Carrington Clarke (1:18)

Thank you so much, Paul. We've just been discussing. It's been what we think, maybe eight years, maybe a decade, at least before the pandemic that we spoke last. And I'm so happy that we can have you on the podcast.

In a particularly eventful week, we're fresh off the RBA decision, a pretty long press conference from Michelle Bullock, the governor, to explain their thinking, but also ahead of this CPI data. There was a question yesterday to the governor about why it was that we didn't get this data before they made the decision in September. She very much put the blame on the ABS. She said, their meetings have been well signposted for a long time, but hopefully we can avoid this in the future. But you've only had half an hour to look at this data so far, Paul. Are there any surprises in it? And is there anything in it that might have changed the RBA's decision to hike interest rates yesterday?

Paul Bloxham (2:10)

I don't think so. I mean, you can never really, you never know the counterfactual. But if you look at the figures today, they're still showing that inflation's still well above the RBA's target. On the headline rate, we're running at 4%. The RBA, of course, targets 2.5%. And on the trim mean, the thing that the RBA really focuses on, this is the core measure of inflation, it's running at 3.6%.

And that's still well above 2.5% as well. So I don't think these figures would make any difference to what the RBA did yesterday if they had actually had those figures at the meeting yesterday. I think they still tell us that inflation is still too high. And I think, you know, I still think they're going to have to do more yet to lift interest rates in the face of, in terms of lifting interest rates in the face of what is a pretty consistent looking inflation challenge.

Carrington Clarke (2:57)

Let's break out some of the elements from this most recent data. You're right, this is the August data that's come through. Let's start with transportation group, which also includes automotive fuel, which you've just been kind of referring to the recent increase we saw over September in fuel prices. Everything was up 30% at one point. I'm not sure what the most recent number was.

That's obviously a significant hit. But even in August, because we had the rolling off of the excise cut that the government had put in place, we saw fuels up by 14.8% for August. That's a significant hit, obviously. Now, they do strip out the most volatile elements when we look at the trimmed mean, which is kind of what the RBA mostly is looking at, at least in the short term. They are targeting that headline figure, but they do kind of look at the trimmed mean to give us an idea of what's happening underlying.

But the other one that strikes me again is what's going on in what they group together as housing. Now, that includes new dwellings, electricity and rents. Rent's still running hot, 3.6% in the 12 months to August. And new dwelling costs up 5.4% in the 12 months. And we keep hearing, don't we, that construction costs are only continuing to soar. And there's probably unlikely to be any reprieve on that end, right?