Betting on a Melbourne Cup Day Surprise: Rate Rise Gains Momentum as Inflation Climbs

Chance of Rate Rise for Melbourne Cup Day Increases as Inflation Rises

Overview

The possibility of a rate rise for Melbourne Cup Day has increased as inflation continues to rise in Australia. The Australian Bureau of Statistics reported that both headline and underlying inflation increased by 1.2% in the September quarter. Soaring petrol prices have contributed to this higher-than-expected inflation result. Almost three-quarters of all goods and services tracked by the bureau recorded price increases of more than 2% over the past year, with one-fifth growing by more than 8%.

The Debate

Some economists argue that these inflation figures make a rate rise on Melbourne Cup Day increasingly likely. Reserve Bank governor Michele Bullock has warned that the bank board would not hesitate to raise interest rates if needed. On the other hand, other experts believe that further rate rises would have little impact on the key drivers of price rises. The Australian Bureau of Statistics stated that inflation would have been even higher without key government cost-of-living interventions that dampened price rises for essentials such as power prices.

Treasurer’s Response

Treasurer Jim Chalmers maintains that inflation is on track to return to normal levels as government programs ease key pressure points. While he acknowledges that the government would like inflation to be lower, Chalmers argues that their policies are helping to bring it down. He points out that the current inflation figures align with the Treasury’s forecasts and are within the Reserve Bank’s target band of 2-3% by early 2025.

Impact on Key Industries

The rise in prices has had a notable impact on the rental market, with rents climbing by 7.6% over the past year. However, the Australian Bureau of Statistics states that this increase would have been higher without the increase in Commonwealth Rent Assistance that came into effect in September. Childcare costs, on the other hand, fell by 13.2% in the September quarter due to changes to the childcare subsidy introduced by the federal government in June. Electricity prices rose by 4.2% in the quarter, but this increase was partially offset by the federal government’s energy bill relief.

Expert Opinions

Economist Cherelle Murphy’s Perspective

EY chief economist Cherelle Murphy highlights that the current inflation figures are out of line with the Reserve Bank’s most recent forecasts. While the bank predicted inflation easing to 4.1% by the end of the year, Murphy argues that recent data and events indicate that the Reserve Bank’s job isn’t yet done. She suggests that a rate rise next month is possible if the bank has to revise their inflation forecast upward.

Job Site Economist Callam Pickering’s View

Callam Pickering, an economist at job site Indeed, believes that the Reserve Bank’s inflation forecasts are becoming increasingly optimistic. If the bank needs to revise their forecasts upward, then there is a clear justification to hike rates. Pickering suggests that a rate rise on Melbourne Cup Day is possible.

Opposing Perspectives

Some economists, such as Deloitte Access Economics partner Stephen Smith, argue that the current figures do not support the case for another rate rise. Smith believes that the strong price growth is not driven by household spending, and given that the full impact of earlier rate rises is still to be felt, there remains little justification to increase interest rates beyond their current level of 4.1%.

Editorial and Advice

Editorial

The recent increase in inflation in Australia has raised the possibility of a rate rise for Melbourne Cup Day. However, there is debate among experts regarding the impact of further rate increases on price rises and the overall economy. While some argue that a rate rise is necessary to address high inflation, others believe that it may not have a significant effect on key drivers of price growth.

Advice

It is important for individuals and businesses to monitor the ongoing discussions regarding interest rates and inflation. If a rate rise does occur, it may have implications for mortgage holders, with an increase in monthly repayments. It is advisable to review personal financial situations and consider potential adjustments if necessary. Furthermore, keeping track of inflation and its impact on different sectors can help individuals and businesses make informed decisions regarding investments, budgeting, and financial planning.