The September-quarter CPI delivered one of the biggest inflation surprises in years, prompting CBA economists to warn that underlying price pressures may be more persistent than markets — and RBA — anticipated.
Trimmed-mean inflation rose 3% over the year, well above RBA’s 2.6% forecast, with economists surprised not just by the magnitude but the breadth of the increases. Prices accelerated in seven of 11 major spending categories, slowed in two and were unchanged in two.
“This pick-up in price growth is occurring against a backdrop of an improving economy,” said Trent Saunders (pictured left), senior economist at CBA.
“The combination of broad-based inflation and a lower potential growth rate suggests underlying inflationary pressures are possibly building.”
CBA’s analysis shows that while volatile items such as fuel and travel contributed to the spike, more persistent price increases are now emerging across housing, childcare and council rates — reflecting businesses passing through higher operating costs.
The bank’s mark-up modelling also suggests some firms are still “catching up” from earlier cost shocks, especially in new-dwelling construction, where builders have scaled back discounting.
CBA says the breadth of inflation is a key concern: about 50% of individual CPI components are now recording annualised inflation above 3%, up from around 40% in the June quarter.
Combined with a firmer-than-expected economy and a labour market still operating with limited spare capacity, CBA argues these dynamics may indicate “deeper, more persistent” inflationary pressure.
CBA expects trimmed-mean inflation to ease slightly to 0.8% in Q4 — lifting annual inflation to 3.2% — before gradually slowing:
This trajectory supports CBA’s view that monetary policy will remain on hold for an extended period, unless either unemployment rises meaningfully or inflation sharply reverses.
RBA’s November minutes highlighted three key concerns: the recent inflation jump, labour-market strength and whether policy remains sufficiently restrictive.
“We don’t expect any major shift in tone from the RBA this year,” said Belinda Allen (pictured right), CBA’s head of Australian economics.
“We generally see the speed limit of the Australian economy being reached in coming quarters and inflation pressures persisting.”
Allen added that if Q4 inflation again overshoots the RBA’s expectations, the February meeting could shift from simply debating cuts or holds to “including all policy options.”
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