It was slightly higher than market expectations of 1.1 per cent and economists were expecting the Reserve Bank would have little option but to increase the cash rate at its November meeting.

In a speech overnight, Reserve Bank Governor Michele Bullock left Australians in little doubt the board would act if inflation increased.

“The board will not hesitate to raise the cash rate further if there is a material upward revision to the outlook for inflation,” Bullock said.

She said some borrowers were having to make some “difficult financial decisions”, such as eating into savings, working extra hours or even cutting spending on things they would normally consider essentials.

“At the extreme, it could involve negotiating a hardship program with their lender or selling their property,” she said.

Economist Warren Hogan said mortgage owners should expect a rate hike in November.

“Pencil in a 25 basis points for November,” he said.

“This opens the door to December, as well. A few other factors have to go the wrong way to get back-to-back hikes, but that’s the risk.”

Chris Richardson agreed.

“There’s another rate rise coming, and it’ll probably spoil your Melbourne Cup.”

IFM economist Alex Joiner said the inflation rise “surprised to the upside” in both headline and underlying (‘trimmed mean’) terms.

“September quarter outcomes are inconsistent with the RBA’s August Statement on Monetary Policy forecasts that have headline inflation at 4.1 per cent, year-on-year and trimmed mean inflation at 3.9 per cent by the fourth quarter of 2023,” Joiner said.

The RBA has continued to assert that it has a low tolerance for any ‘material’ upside surprise on inflation and will not “hesitate” to raise the cash rate further should this occur. This Q3 outcome puts pressure on it to hike the cash rate again in the near term. It will likely retain a hawkish bias which inflation moves towards its target.

The major banks were not expecting rates to ease until mid to late next year.

The quarterly increase left inflation at 5.4 per cent for the year. Significantly, the September quarter increase was higher than the one charted in the previous quarter of 0.8 per cent, but was lower than those experienced in 2022.

Rents were a major concern. They rose another 2.2 per cent in the quarter while automotive fuel jumped by 7.2 per cent.

The rent increase was on top of the 2.5 per cent rise in the September quarter and annually they rose by 7.6 per cent, the highest increase since 2009. Offsetting this was an increase in rent assistance from the Federal Government.

On annual basis, new dwellings have risen 5.2 per cent, rents 7.6 per cent and electricity 14.5 per cent while fuel was up 7.9 per cent.

ABS head of prices statistics Michelle Marquardt said while prices continued to rise for most goods and services, there were some offsetting falls this quarter including for child care, vegetables, and domestic holiday travel and accommodation.

“Electricity prices were partially offset by the Energy Bill Relief Fund rebates, which were introduced this quarter. These rebates reduced electricity bills for all households in Brisbane and Perth, and for concession households in the remaining states and territories. Excluding the rebates, electricity prices would have increased 18.6 per cent in the September quarter,”  Marquardt said.

“While prices continued to rise for most goods and services, there were some offsetting falls this quarter including for child care, vegetables, and domestic holiday travel and accommodation.”

The ASX 200 index fell 40 points immediately after the announcement, indicating that investors believe a rate hike was coming.