Inflation resurgent
Not much good news for households with a mortgage - or for the Treasurer, for that matter - in the September inflation figures.
Headline inflation increased to 4.3 per cent for the 12 months to September 2026 (up from 4 per cent over the year to August).
Trimmed mean inflation was 3.6 per cent over the 12 months to September, with the August figure revised down slightly to 3½ per cent.
Source: ABS
It came as little surprise that the gargantuan increase in auto fuel prices has been largely to blame for the reacceleration in inflation.
There wasn't much good news here, but one of the ways in which monetary policy works - apart from via the currency channel - is through the housing market, and new dwelling price inflation does appear to be slowing significantly now.
The housing component has been one key source of inflation since 2021.
Demand for new homes has collapsed since the Federal Budget in May, and these dynamics are now feeding its way into new dwelling prices (there is also more discounting around now, despite high materials prices):
Source: ABS
Indeed, while new dwelling prices have soared by almost 50 per cent since 2021, it looks as though this key source of inflation has been effectively tackled.
New dwelling prices were flat or negative in most capital cities in September, ex-Sydney.
While it's potentially good news for savers that they can now get a return on their term deposits as interest rates increase, the flip side is that the purchasing power of cash in the bank is still being inflated away very quickly.
In fact, if you were to look at the growth in the money supply, it has increased by more than 60 per cent since the beginning of the pandemic.
The wrap
Overall, the September inflation figures were broadly as expected, but too hot for comfort.
Market pricing is now looking for a further interest rate hike on Melbourne Cup day, taking the cash rate target to a new cycle high of 4.85 per cent.
Households with a mortgage have benefited from their debt being rapidly inflated away over the past 5 or 6 years, but are now taking the pain of higher mortgage rates.
They'll be hoping that the RBA can rip the band aid off with a fifth interest rate hike for the year, potentially putting Australia is a stronger position to bring interest rates back down later into 2027.
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Horrific polling numbers for the government were released today, with the 2-party preferred vote falling away dramatically in the aftermath of shocking incident in Wangaratta.
The polling period was before the release of the inflation figures, so there's further bad news in the post for the government to follow.
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