So it’s goodbye to lower interest rates – to be honest, the RBA was always looking for an excuse not to cut | Greg Jericho

Is there a release of economic data that can more quickly dash people’s hopes than inflation? Prior to Wednesday’s release of the September quarter CPI figures, there was a pretty good chance that on Melbourne Cup day the Reserve Bank of Australia would cut interest rates. Now that hope is gone. The quarterly inflation growth of 1.2% was roughly double what economists and investors were expecting: If the graph does not display click here So it’s goodbye to lowering interest rates – but to be honest the Reserve Bank was always looking for an excuse not to cut them. Related: Australia’s surprise unemployment spike suggests an economy not overheating but in need of stimulus | Greg Jericho On Monday night, the governor of the Reserve Bank, Michele Bullock, was sanguine about the rise in unemployment. She told the audience at the Australian Business Economists annual dinner that the jump in the unemployment rate to 4.5% was “a bit of a surprise” but that “monthly numbers can be volatile”. She then concluded that it “is still pretty low, compared with where it was pre-Covid”. That is not a great comparison given that in 2019 all the talk was whether we were headed for a recession. But oh well, we’re still doing better than that, so no need to cut rates! Now the inflation rate means the RBA has an easy reason to ignore rising unemployment. Inflation in the past year rose 3.2%, up from 2.1% in the year to June. That was the fourth-biggest jump in annual inflation over the past 40 years. If the graph does not display click here So what happened? Where is our glorious inflation within the RBA target band of 2% to 3%? It is worth noting that the trimmed mean, which is the underlying measure of inflation that the RBA and those who constantly argued for higher rate cuts prefer to look at, is 2.95%. The weighted median (which is another way underlying inflation is measured) is 2.85%. Both measures are still within the target band. So let’s not panic. Things are still mostly where they should be. The CPI bounced up because, unlike the trimmed mean, it doesn’t get rid of the big jumps (or falls) in prices. The story this quarter was one of big jumps in electricity prices due to the end of the state subsidies. The rise in electricity prices accounts for about 15% of the total increase in inflation. That’s a pretty sizeable impact for something that only accounts for 1.8% of the average total of things we spend money on. Behind electricity prices was a jump in property rates and charges, and also new dwelling purchases, which is actually the cost of building a new home: If the graph does not display click here One way to see just how big of an impact the state electricity rebates have had on inflation is to look at the price of electricity in Perth and Brisbane: If the graph does not display click here The price of electricity in Brisbane in the September quarter this year was 1,694% higher than it was a year ago, when the state rebate was in full swing. That’s not because the price of electricity has actually risen that much, but the amount paid by households has because they no longer get the subsidy. Overall, we can see that the full impact of the rebates has essentially gone, with only the federal rebate still having an impact: If the graph does not display click here Now, you might think this is a bad thing but the whole point of the rebates was to lessen inflation when it was high, and to come off when overall inflation is lower. Before the state electricity rebates came into effect in September 2023, overall inflation was growing at 6% a year. Now when they are taken away it is 3.2%. That is exactly how they were meant to work – take away the heat while prices are on fire, and then come back when things have cooled down. The good thing, however, is that overall most prices did not see a big jump. The inflation increase was largely driven by an increase in a small number of items that rose over the past year by more than 5%, while at the other end the number of items whose prices fell did not change. If the graph does not display click here One concerning aspect is that because the inflation is being driven by electricity prices, property rates and also rents, once again the prices of “non-discretionary” items are rising faster than the more luxury items. If the graph does not display click here In the past year, the cost of discretionary items rose just 2.4% on average. Given richer households spend more of their incomes on these items, it suggests that once again low-income households are the ones hurting the most. The lack of interest rate cuts will also least hurt those households that have either already paid off their mortgage or took it out back when interest rates were much higher. It’s worth remembering that both inflation and the supposed “cure” of higher interest rates can hurt younger and poorer households more than those who have plenty of savings to rely on. • Greg Jericho is a Guardian columnist and policy director at the Centre for Future Work