September Quarter Inflation

An absolutely terrible CPI print today, with inflation way ahead of expectations in the September quarter.

🔥 Headline inflation was 7.3% YoY (vs 7.0% expected)

🔥 Trimmed mean inflation was 6.1% YoY (vs 5.6% expected)

🔥 The preliminary monthly core inflation print was up 6.8% YoY

🔥 Inflation for the September quarter was 1.8% QoQ

🔥 Non-discretionary inflation accelerates to 8.42% which will hit household budgets hard

🔥 Inflation is now broadly entrenched across the economy, with 83% of the basket increasing at more than 2.5% YoY

This is all pretty bad news for the economy, with inflation rising faster than expected. There's reasons for concern looking forward, with services inflation currently only making up 1.7% of the 7.3% YoY increase, there is a lot of scope for services inflation to grow (as we've seen in the US) and keep inflation high for an extended period.

While this print 'should' push the RBA to increase the pace of rate rises back up to 50bp a months, I suspect it won't and we'll see another 25bp move next week.

Instead, we are likely to see a longer and slower hiking cycle with a higher terminal rate around 4.2% late next year.