The Q3 CPI was higher than expected and up 1.2% q-o-q (consensus 0.8%) although the annual change is only 2.2% y-o-y. The main causes of the bigger than expected rise were sharp increases in components related to transport, +2.4% q-o-q (mostly petrol prices up 7.6% q-o-q); housing, +2.0% q-o-q (electricity up 4.4% q-o-q, property rates and charges up 7.9% and water and sewerage charges up 9.9%) and recreation and culture, +1.9% (domestic holiday travel costs up by 3.5%). None of the major CPI components fell in Q3 which is unusual although the education and health components were flat. After seasonal adjustment the RBA’s underlying inflation measures, the trimmed mean +0.7% q-o-q (consensus +0.6%) and weighted median +0.6% (consensus +0.6%) were just about in line with expectations. The RBA is unlikely to be unduly concerned by the CPI outcome although its confidence about how low the inflation rate will stay may be a little battered. The CPI adds to factors that suggest the RBA has almost no room to cut the cash rate any further, although it should be stressed that there is nothing in the CPI report that points to any need to start raising the cash rate in the near term.
