"New CPI data out today is part of a dangerous cocktail, with Australia now unfortunately at an elevated risk of stagflation, with both inflation and unemployment beginning to rise," said Innes Willox, Chief Executive of the national employer association, Australian Industry Group.
Australian CPI rose from 2.1% to 3.2% p.a. in the September quarter, well above forecasts and market expectations. Trimmed Mean inflation – the RBA's preferred measure of underlying price movements – also rose for the first time since late 2022 to 3.0% p.a.
Some of this was expected due to the cessation of household energy subsidies in the quarter. But many other goods and services – including property charges, transport, telecommunications, travel and underlying energy prices – also saw the pace of inflation materially pick up.
Australia's inflation remains primarily homegrown, with prices for tradables increasing at 1.4% p.a. while non-tradables grew at 4.1% p.a. Wage-exposed services prices also rose faster than for goods.
"When read alongside the recent increase in unemployment, this data points to an elevated risk of stagflation for the Australian economy. Inflation is rising again just as the labour market is weakening," Mr Willox said.
"The re-emergence of inflation is entirely unsurprising given our poor productivity. Recent high wage rises that have been disconnected from productivity growth have stoked inflation, particularly in wage-exposed services sectors.
"This could not come at a worse time, given poor conditions in much of the private sector and dependence on government-supported sectors to maintain a resilient labour market. It is simply unsustainable to rely on government for the majority of job creation in Australia.
"This mix of rising inflation, a weakening labour market and low productivity is a dangerous cocktail. Monetary policy is now increasingly torn between the imperatives of controlling prices and protecting employment.
"The only route out of this bind is for Australia's productivity to improve. Until it does, we risk gradually sliding into weaker economic performance for years to come," Mr Willox said.
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