Inflation jumps to four-month high a day after RBA rate rise

Australia’s inflation rate has jumped to a four-month high, keeping pressure on the Reserve Bank to continue lifting interest rates.

The consumer price index rose from 3.5 per cent in July to 4 per cent in August, driven by higher housing-related costs and surging petrol prices.

The inflation increase comes a day after the Reserve Bank lifted official interest rates to a 15-year high of 4.6 per cent in a bid to dampen inflationary pressures in the economy. It was the fourth interest rate rise this year and the bank warned it would lift rates “further if needed” to bring price growth under control.

The underlying rate of inflation, a key guide to the future of interest rates, was unchanged at 3.6 per cent, but still well above the Reserve Bank’s inflation target of 2-3 per cent.

Betashares chief economist David Bassanese described underlying inflation as “uncomfortably high.”

Housing-related costs were the largest contributor to annual inflation in August, rising by 5.7 per cent. The Bureau of Statistics said new dwelling prices rose 5.4 per cent in the 12 months to August “as builders passed on higher costs for materials and labour”, while rents were up 3.6 per cent.

Transport was the second-largest contributor to annual inflation, rising by 5.6 per cent, as higher global oil prices and the unwinding of the federal government’s temporary fuel excise cut flowed through to bowser prices.

In the month of August fuel prices surged 14.8 per cent, more than any other good or service tracked by the Consumer Price Index.

Treasurer Jim Chalmers said the recent resurgence of the war in the Middle East was pushing up fuel costs, inflation and interest rates around the world.

“These numbers show that Australia is not immune from that,” he said.

Following Tuesday’s interest rate increase, Reserve Bank governor Michele Bullock said the Middle East conflict was adding to price pressures along with “domestic capacity pressures”.

The Reserve Bank has warned repeatedly that elevated fuel costs are passing through to the price for other goods and services.

EY senior economist Paula Gadsby said the fight to reduce inflation was far from over.

“We expect the board may need to raise interest rates again before the end of the year if, as we expect, inflation momentum fails to moderate,” she said.

The Reserve Bank’s monetary policy board, which sets official interest rates, will meet again in early November to consider any change.

Among the state capitals, Hobart had the highest annual inflation rate of 4.8 per cent, while Melbourne had the lowest at 3.5 per cent.

During a testy press conference in Melbourne on Wednesday morning, Prime Minister Anthony Albanese rebuked journalists for asking about the impact of government spending on inflation.

While a journalist was halfway through her question about Labor’s spending, the prime minister cut in to say: “There’s a question in there somewhere.”

He then said his government had taken every possible opportunity to make savings, and that the Coalition had opposed every attempt it had made to cut spending, bar one.

“We’ve had $178 billion of savings. And indeed, the only savings that the Coalition have supported … is on the NDIS, and that they delayed for months to play politics along with the Greens in the Senate,” Albanese told reporters.

“Angus Taylor has a question that he has to answer, which is how can you promise $110 billion of new spend, which he has? How can you oppose every saving which has been put forward, which he has?“