The Commonwealth Bank has predicted that "red hot" consumer inflation will continue over the September quarter, and the Australian share market has dropped on fears that more aggressive interest rate rises by the US central bank will trigger a recession.
The latest official consumer price rise figures will be out next Wednesday, and Commonwealth Bank head of Australian economics Gareth Aird is expecting the data to show that inflation is running at 7 per cent over the year, despite a string of interest rate rises by the Reserve Bank.
"We expect inflation pressures to abate relatively swiftly in 2023," he said.
"But in the near term the annual rate of inflation will push higher."
However, Mr Aird predicted that the quarterly pace of inflation could pull back from 1.8 per cent in the June quarter to 1.6 per cent over the September quarter.
He forecast that higher prices for food, gas, water and rents, would be offset by a decline in petrol prices.
"The upshot is that Australia's inflation "problem" is not getting worse," he said.
But UBS chief economist George Tharenou sees hotter inflation for the rest of 2022.
He predicts September quarter consumer prices will rise by 1.8 per cent and by 7.3 per cent over the year, driven by higher food and alcohol costs, housing, rents and utility prices.
However, Westpac economist Justin Smirk thinks the pace of price rises will have pulled back from July to September.
He predicts that quarterly inflation will rise by 1.1 per cent and by 6.5 per cent over the year because of state energy rebates, which will reduce power prices.
However, Westpac has raised its annual inflation forecast for the year to 7.7 per cent, slightly below RBA forecasts of 7.75 to 8 per cent.
Consumer inflation rose by 6.1 per cent over the year to June, and the Reserve Bank has raised interest rates by 2.5 per cent from a record low of 0.1 per cent in May in an attempt to curb price rises.
Earlier this month, it became the first major central bank to slow the pace of its rate rises citing risks to the global and domestic economies and the potential for inflation to pull back quickly.
Mr Aird said he expects another one quarter of a percentage point rise on Melbourne Cup day on the first Tuesday in November.
"The hurdle for the RBA to go back to a larger than normal 0.5-percentage-point rate increase having slowed the pace of tightening down in October is very high," he said.
Treasurer Jim Chalmers said he expects the floods in eastern Australia to push up the cost of fruit and vegetables by 8 per cent, and weaken economic growth by around one quarter of a percentage point.
ASX loses ground
The Australian market declined after a fall on Wall Street, following comments from a Federal Reserve official, which reignited concerns that steep rate rises by the US central bank could cause a recession.
The All Ordinaries index fell 0.7 per cent, to 6,870, while the ASX 200 index fell 0.8 per cent, to 6,677.
Nearly all sectors were in the red, aside from energy stocks.
Leading the losses were utilities, financials, and real estate firms.
All the big banks dropped with National Australia Bank (-1.5 per cent) faring the worst.
The worst performer on the ASX 200 was real estate investor Home Consortium (-5.5 per cent) and the best performer was Telix Pharmaceuticals (+12.7 per cent) after a surge in quarterly revenue.
ASX movers
AMP (steady) said investment outflows at its Australian wealth management business had halved and inflows into its North online investment platform had increased.
However, overall funds under management dropped to $121 billion because of weaker investment markets and continued withdrawals.
The Insurance Council of Australia said insurers had received at least 7,837 claims for damages so far from the floods in Victoria, New South Wales and Tasmania.
Insurer Insurance Australia Group fell 2 per cent.
Private health insurer Medibank extended its suspension from trade ahead of an update on the cyber attack, which saw customers' personal data stolen.
Shares in coal miner Whitehaven Coal rose nearly 5 per cent after it completed an initial share buyback.
The Australian dollar briefly jumped to 63.56 US cents overnight.
At 4:30pm AEDT, it was lower, at 62.63 US cents.
UK shares gain after Liz Truss quits
The UK's benchmark index closed higher after Prime Minister Liz Truss stepped down amid political and financial turmoil in that country.
The British prime minister announced she would resign after just six weeks as her party's leader, weeks that have been marred by an economic policy that drove up the cost of government borrowing and mortgage interest rates, and saw the pound fall to a record low against the greenback.
That turmoil saw the Bank of England intervene to prop up the country's bond market.
Former chancellor Kwasi Kwarteng — who delivered the mini budget — was then sacked by Ms Truss.
New chancellor Jeremy Hunt abandoned most of the government's plans for debt-funded tax cuts and scaled back an energy cost relief plan to limit financial chaos.
The announcement by Ms Truss saw the FTSE 100 index rise 0.3 per cent, to 6,944, after a volatile session, and the pound jumped above 1.13 US dollars ahead of the expected resignation.
However, sterling lost its gains over the rest of the trading session and closed lower, at 1.12390 US dollars.
Investors welcomed the news of Ms Truss's resignation, but were also worried about who would succeed her.
"Overall, the resignation is a step that needed to happen for the UK Government to move further along the path towards restoring credibility in the eyes of the financial markets," said Paul Dales, chief UK economist at Capital Economics in London.
"But more needs to be done and the new prime minister and their chancellor have a big task to navigate the economy through the cost of living crisis, cost of borrowing crisis, and the cost of credibility crisis."
Interest on 10-year UK government bonds eased back from above 4 per cent, to 3.89 per cent after the announcement, but still closed higher, according to Bloomberg data, reflecting concerns about political instability.
The yield on its 30-year bonds fell slightly.
The UK's long-term borrowing costs have come down from 20-year highs since Ms Truss began to abandon her economic plans.
Traders pulled back expectations for a steep, 1-percentage-point rise by the Bank of England next month, instead betting on a 0.75- percentage-point rise.
With inflation at a 40-year high and millions of people struggling with the cost of living amid an energy crisis because of the war in Ukraine, the UK economy is heading into recession.
Other European markets also gained, with the DAX in Germany up 0.2 per cent, to 12,767, and the CAC 40 in Paris rising 0.8 per cent, to 6,087.
Twitter to slash staff report
Billionaire and Tesla founder Elon Musk told prospective investors he planned to get rid of nearly three quarters of Twitter's 7,500 strong workforce according to the Washington Post.
The media organisation cited interviews and documents in its story and said staff numbers would be cut to around 2,000 if Mr Musk took over the company.
Its report said job cuts were expected in the coming months, regardless of who owned the company.
It said Twitter's current management already wanted to reduce the company's payroll by around $800 million ($1.2 billion) by the end of next year, plans already in place before Mr Musk offered to buy Twitter for $US44 billion ($70.1 billion).
The deal is expected to be completed next week after months of legal battles.
Wall Street down
US stocks fell in a volatile session and the costs of government borrowing in that country continued to rise on expectations of more-aggressive rate rises by its central bank, the Federal Reserve.
All three major US indices reversed an earlier rally after the president of the Philadelphia Federal Reserve, Patrick Harker, said the central bank would "keep raising rates for a while".
His comments saw the yield — or return — on 10-year US government bonds rise above 14-year highs.
Financial markets are expecting another 0.75-percentage-point increase in official rates when the Federal Reserve meets next month.
In addition, the number of people lodging new claims for unemployment benefit fell last week, although sales of US homes slid for the eighth month in a row.
The Dow Jones index fell 0.3 per cent, to 30,334, the S&P 500 lost 0.8 per cent, to 3,666, but the Nasdaq Composite rose just 0.6 per cent, to 10,615.
The decrease came despite good earnings reports from corporate giants IBM and AT&T.
Tesla shares fell after its third-quarter revenue was less than predicted by analysts.
Brent crude oil was higher at $US92.60 a barrel, while spot gold fell 0.1 per cent, to $US1,626.49 an ounce.
ABC/Reuters
