Australian inflation jumped during the September quarter but remains at levels weak enough to allow room for the RBA to cut rates again in November.

Data out today showed inflation rose 1.4 per cent in the three months to the end of September following the introduction of the carbon tax on 1 July. Economists polled by Bloomberg tipped a 1 per cent rise as the impact of the carbon tax filtered through the economy.

On an annual basis, inflation increased 2 per cent, up from a 1.2 per cent rise in the year to June, the ABS said. Economists forecast the inflation rate would tick up to 1.6 per cent in the year to September.

The Aussie dollar jumped from US$1.0275 to above US$1.03 in the moments after the data was released.

Core inflation, which is the number the RBA looks at when deciding on rates, was 2.5 per cent in the year to September.

Rates impact

National Australia Bank forex strategist Ray Attrill said that because core inflation was "bang in the RBA's target range" the central bank would likely not be dissuaded from a rate cut next month.

"On balance I think it's more likely than not that the RBA will go," he said.

That's a view shared by Rochford Capital managing director Thomas Averill, who said that while the numbers outstripped expectations, they were not high enough to stop the RBA from cutting rates when it next meets on Melbourne Cup day. But he said expectations of future cuts could begin to moderate.

"The market had been looking for another 75 basis points cut down to 2.5 per cent over the next 12 months. You're going to see those expectations moderate to 50 basis points worth of cuts," he said. 

Averill said the carbon tax was also having a visible impact on inflation figures.

"Energy prices have made a fairly big contribution to the inflation numbers," he said. "The extent which the RBA can do anything about that through monetary policies is pretty limited."

Before the CPI numbers was released, investors said there was a 79 per cent chance of a rate cut in November, but the strong reading saw investors trim that bet to 54 per cent, giving a 25 basis point reduction a roughly one-in-two chance.

Cabon tax impact

One economist said the larger-than-expected jump in consumer prices was in part due to the introduction of the carbon tax.

RBC Capital Markets senior economist Su-Lin Ong said the carbon tax had moved inflation up faster than anticipated, but that it was still comfortably within the RBA's target.

"There is clearly some impact from the carbon tax there, but the core measures, which strip out a bit of that, are also firmer," she said.

"It looks like price pressures could be a bit more broadly based in the quarter than we anticipated."

The Reserve Bank aims to keep annual inflation between 2-3 per cent to ensure steady economic growth. Weaker inflation gives the central bank more scope to cut official rates if needed. A series of weaker signals on the outlook for the economy have prompted 23 out of 26 economists polled by Bloomberg to predict a rate cut on Melbourne Cup day when the Reserve Board meets again.

- Sydney Morning Herald