Australian consumer inflation accelerated for a fourth month in a row in October, a new data series showed today, a result that has markets giving up hopes of more policy easing and even flirting with the idea of a hike.
Investors sharply pared bets that the Reserve Bank of Australia will be able to deliver one last rate cut in May next year to just 8%, from 40% before, and there is now a 32% chance of a rate hike by the end of next year.
Data from the Australian Bureau of Statistics showed its monthly consumer price index (CPI) in October rose 3.8% from a year earlier, the highest in 10 months and above median forecasts of 3.6%.
That marked a steady pick-up from the trough in June when inflation hit a low of 1.9%.
The trimmed mean measure of core inflation ran at an annual 3.3% in October, up from 3.2% in September, also not going in the RBA's desired direction.
"All up, it's a pretty ugly inflation print," said Harry Murphy Cruise, head of economic research for Oxford Economics Australia.
"For the RBA, this keeps cuts off the table. In fact, a hike can't be ruled out."
This is the first complete monthly CPI report published by ABS, replacing the old and partial monthly series. However, the RBA has said it still prefers the quarterly prints for a better gauge of inflation trends given the new data can be volatile.
Headline Australian inflation surged in the last quarter to 3.2%, back above the target band of 2-3%, fuelling concerns that monetary policy might not be restrictive after three rate cuts this year. Home loans jumped and the consumer mood turned optimistic for the first time in four years.
Details of the report suggested the pick-up in inflation has been broad-based, with price pressures in the services sector accelerating. Services inflation ran at an annual rate of 3.9% last month, up from 3.5% in September.
Housing inflation advanced to 5.9% in the 12 months to October, from 5.7% before, even though the government's electricity rebates have flowed through to some households and brought the costs down for the month.
"The Reserve Bank needs to reverse the recent trend and get inflation moving back to the midpoint of the target band, while knowing that the full impact of the three rate cuts delivered this year so far have not been fully felt," said Cherelle Murphy, EY chief economist.
"A rate hike may even be considered (in December) given the next Monetary Policy Board meeting is not until February," the economist added.
