The high level of petrol prices continues to weigh on Australians’ view of the inflation outlook, as the Reserve Bank of Australia board gathers for its monthly board meeting.

The weekly ANZ-Roy Morgan consumer survey showed inflation expectations edge only 0.1 percentage points down from 4.9 per cent after spiking to a seven-year high of five per cent last week.

“The sharp quarterly rise in fuel costs of 7.1 per cent in Australia’s Q3 CPI likely had a significant impact on householders’ inflationary outlook during these past few months,” ANZ head of Australian economics David Plank said.

Rising fuel costs were a key factor in last week’s September quarter inflation figures, which kept the annual consumer price index at three per cent and at the top of the RBA’s two to three per cent inflation target.

The national average price for unleaded petrol did decline a modest 0.7 cents a litre in the past week to 168.8 cents, after striking a record high in the previous week, but record prices were seen in Adelaide, Hobart and Canberra.

However, despite the impact of high fuel costs on the household budget, consumer confidence rebounded as COVID-19 restrictions in Australia’s major states continued to ease.

The ANZ-Roy Morgan consumer confidence index — a pointer to future household spending — rose 1.5 per cent to its highest level since early July.

Confidence was up two per cent in NSW and Victoria 5.5 per cent in Victoria, offsetting falls in Queensland, South Australia and Western Australia.

Meanwhile, economists are convinced the RBA will bring forward the guidance for future interest rate moves following the inflation data.

Importantly, the annual rate of underlying inflation — which smooths out excessive price swings and is linked to interest rate decisions made by the RBA — unexpectedly jumped to 2.1 per cent.

It was the strongest result in six years.

For months RBA officials have been adamant that it will not raise the cash rate from its record low 0.1 per cent until inflation is sustainably within its two to three per cent inflation target, an event it had not expected to occur before 2024.

However, financial markets and economists have been betting for some time that it will need to move much earlier.

Markets are now pricing in the risk of a 0.25 per cent rate hike in June next year and almost three more rate increases to follow over the remainder of the year.

While economists at St George believe this market move was “well overcooked”, the RBA will be feeling the heat from this backdrop.

“Inflationary pressures combined with the prospect that the labour market may hit full employment sooner than previously expected suggests a shift in guidance cannot be ruled out,” they said in a note to clients.”

– AAP