Photo: Vince Caligiuri/ Getty Images.

Australia’s September quarter consumer price inflation (CPI) report has just been released, and it’s come in hotter-than-expected.

Headline CPI rose by 0.7% for the quarter, leaving the year-on-year increase at 1.3%.

The figure beat expectations for an increase of 0.5% and was higher than the 0.4% level reported in the June quarter.

According to the ABS, the most significant price rises over the quarter came from fruit (+19.5%), vegetables (+5.9%), electricity (+5.4%) and tobacco (+2.3%).

They were partially offset by falls in communication (-2.3%) and fuel (-2.9%).

The ABS said the jump in fruit and vegetable prices was due to adverse weather conditions, including floods, in major growing areas, impacting supply chains.

This table from the ABS breaks down the increase in headline inflation by individual component, looking at both the quarterly and year-on-year changes. The quarterly movement is shown in the left-hand column, with the year-on-year change found on the right:

By source, tradable inflation — primarily influenced by global factors and accounting for 40% of the ABS’ CPI basket — rose by 1% for the quarter.

Higher fruit prices, along with increased costs for international travel and accommodation, were factors that contributed to the rise, partially offset by a 2.9% decline in the cost of automotive fuel.

Non-tradable inflation — reflective of domestic cost pressures and accounting for the remaining 60% of the basket — rose by a smaller 0.5%.

A 5.4% rise in electricity prices, accompanied by a 4% lift in property rates and charges, were partially mitigated by a 2.5% drop in telecommunication equipment and services.

From the same quarter in 2015, tradable inflation rose by 0.7%, overshadowed by an increase of 1.7% in non-tradable prices.

Both were above the flat and 1.6% increases seen in the year to June.

Reflective of the divergent economic performance between mining and non-mining states and territories, Sydney, Melbourne, Brisbane and Canberra recorded the fastest increase in inflation over the past 12 months.

Unsurprisingly, those capitals more aligned to the mining sector — Perth, Darwin and Adelaide — logged the slowest increase in prices over the same period.

Source: ABS

Underlying inflation, of more importance to financial markets given its implications for Australian interest rates, increased by 0.35% for the quarter, leaving the year-on-year rate at 1.5% (without rounding it was 1.54%).

It was the lowest year-on-year increase on record, courtesy of upward revision to the Q2 figure from the ABS.

Economists were looking for a gain of 0.4% for the quarter, and 1.55% increase year-on-year.

In year-on-year terms, core inflation is now running in line with the RBA’s year-end forecasts, a factor to consider when looking at its implications for interest rates.

While the core inflation figure was a smidgen below expectation, given it is now in line with the RBA’s forecasts, and accompanied by strength in east coast property prices and enormous gains in Australia’s key commodity exports, has seen investors adopt the view that it will not be enough to see the RBA cut rates, at least in the near-term.

The Australian dollar has surged in the minutes following the release, trading at .7687, a gain of 0.55%. It initially jumped to as high as .7708.

Reflective of the reduced likelihood of lower interest rates, the ASX 200 has come under significant selling pressure, led by some big decline in higher-yielding sectors. It currently sits down 1.4% at 5,366.4.

Explaining the move in both the Australian dollar and ASX 200, cash rate futures have wasted no time in pricing out the likelihood of a RBA rate cut on Melbourne Cup day, putting the probability at just 4%, down from 14% prior to the report’s release.

3-year Australian bond futures are also trading softer (yields higher), sitting down 2 points at 98.29.

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