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Interest rates back in focus as market awaits key updates on inflation

Interest rates are once again in the spotlight this week, with two public appearances by the new Reserve Bank Governor, Michelle Bullock, and two crucial updates on inflation. Despite a surge in bond yields last week, the possibility of a rate increase at the Melbourne Cup meeting of the Reserve Bank board is not set in stone.

On Wednesday, two pivotal inflation indicators, the quarterly and monthly Consumer Price Index, will be released, providing essential insights. The yield on the 10-year Australian Treasury bond hit a 12-year peak but then eased, leaving room for speculation on the RBA’s decision in ten days.

Local economists believe the recent rise may deter the RBA from raising rates, but they caution that Governor Michelle Bullock is keen to emphasize her commitment to curbing inflation. She has a speech scheduled tomorrow and will appear before the Senate Economics Committee on Friday to reinforce her tough stance on inflation and “low tolerance” for persistent price pressures.

Shane Oliver, AMP’s chief economist, expects the September quarter CPI data to reveal a 1.1% increase from the June quarter, bringing annual inflation down to 5.3%. This aligns with RBA forecasts, but the trimmed mean may present an upside risk.

Economists at the National Australia Bank anticipate a 1.1% quarterly print for both headline and underlying inflation, resulting in year-ended rates of 5.2% and 5.0%, respectively. The key drivers include a substantial rise in fuel prices, offset by declines in fruit & veg and childcare.

Moody’s economists project a year-on-year decrease in headline inflation to 5.1% in the September quarter from 6% in June. They note that despite occasional fluctuations, the overall trend suggests the Reserve Bank of Australia will remain on the sidelines for the rest of the year.

In addition to these developments, business conditions PMIs are expected to soften slightly after a September rise, and producer price inflation for the September quarter will be released on Friday.

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