Milk prices in Melbourne are climbing at their fastest annual rate since the 1982 drought.

Milk prices in Melbourne are climbing at their fastest annual rate since the 1982 drought.Credit:Nic Walker

Addressing the National Press Club,Chalmers said the government understood rising prices meant more hip-pocket pain for households,pushing “people closer to the edge”.

“Inflation is public enemy number one. Inflation is the dragon we need to slay,” he said.

Across most parts of the economy,prices climbed more than expected through the quarter. New dwelling costs,the single biggest driver of inflation,lifted another 3.7 per cent to be 20.7 per cent higher up over the past year.

Gas and other household fuel prices increased by 10.9 per cent while furniture prices,in a sign of pent-up demand and ongoing supply issues,lifted by 6.6 per cent.

Many ordinary items continue to be more expensive. In Melbourne,milk prices have climbed by 16.1 per cent over the past year,the fastest annual rate since the 1982 drought. In Sydney,the cost of cooking oils and fats have soared by 19.2 per cent due largely to the impact of the war in Ukraine.

The figures also confirmed consumer demand is pushing up prices. Domestic holiday travel and accommodation costs lifted by 3.6 per cent nationally as people grabbed the chance to take a break from work.

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Tuesday’s federal budget forecast inflation to peak at 7.75 per cent in the December quarter,but the new figures suggest it could push beyond 8 per cent.

Chalmers said if the budget had contained “indiscriminate” cost-of-living relief then it would have added to inflationary pressures.

This would then have put upward pressure on interest rates.

The situation could have been worse. Prices for clothing,footwear and transport actually fell while education costs were steady. The price of petrol slipped by 4.3 per cent in the quarter.

But the end of the reduction in fuel excise will push up petrol prices through the December quarter. The weak Australian dollar is expected to put upward pressure on clothing prices and other imported goods.

While there are reports of substantial increases in rents,they have yet to flow through to the nation’s two largest cities. Rents in Sydney have climbed by 1.6 per cent over the past year while in Melbourne,they are up by 1.2 per cent.

Key measures of underlying inflation,which are heavily used by the Reserve Bank,hit record highs in the quarter.

The RBA has lifted the official cash rate from 0.1 per cent to 2.6 per cent since May,with markets and economists expecting more rate rises at its November and December meetings.

The new figures prompted some economists to suggest the Reserve Bank will have tighten monetary policy further to bring down inflation.

NAB chief economist Alan Oster,who now believes the Reserve Bank will push official interest rates up to 3.6 per cent by March next year,said there were growing risks the fight to slow inflation would hit the economy.

“We expect higher interest rates to materially weigh on consumption and GDP growth in 2023 and 2024 and while we don’t expect a recession,annual growth will likely fall below one percent and unemployment rise to 4.5 per cent,” he said.

Senior ANZ economists Catherine Birch and David Plank believe the Reserve Bank will now take the cash rate to 3.85 per cent early next year.

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They said measures of underlying and non-tradeable inflation gained momentum in the September quarter.

“These broad-based,domestically driven inflationary pressures are persistent and harder for the RBA to rein in,particularly given that the overall economy is in good health with solid household spending,strong business conditions and a substantial volume of unfilled labour demand,” they said.

“We see higher inflation extending into 2023 due to both the stronger September quarter data and the upside risks ahead given continuing cost pass-through,flooding,lower Australian dollar and evidence of persistence in inflationary pressures globally.”

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