Australians are still being squeezed by high insurance premiums, medical bills, rents and grocery prices, with new data showing inflation pressures are far from gone.

September-quarter inflation figures published by the Australian Bureau of Statistics on Wednesday revealed the headline Consumer Price Index (CPI) eased to 2.8 per cent annually.

But underlying inflation, which strips out the most volatile price changes including billions in federal energy bill subsidies, was higher at 3.5 per cent, dashing hopes of a rate cut.

A particular concern for the Reserve Bank will be a re-acceleration in services inflation to 4.6 per cent, with households still facing the squeeze on insurance, housing, education costs and medical bills.

“Service sector inflation right now isn’t compatible with meeting the RBA’s 2 to 3 per cent inflation target on a consistent basis,” Indeed APAC economist Callam Pickering explained.

And while overall goods inflation has halved, grocery prices remain “elevated”, the ABS said, increasing 3.3 per cent annually again amid higher costs for berries, tomatoes and capsicums.

RaboResearch senior food retail analyst Michael Harvey said food costs are much lower than last year but still “higher than average”.

“With the summer season now approaching, we are starting to see good volumes and lower prices in some fruit and vegetable products,” he said.

Electricity bill relief

One source of relief for families struggling with torrid cost-of-living pressures was energy bills, which plummeted 17.3 per cent over the quarter after federal government support.

“[Federal electricity rebates] led to a large fall in electricity prices this quarter,” ABS head of prices statistics Michelle Marquardt said.

“Without the rebates, electricity prices would have increased 0.7 per cent this quarter.”

Oxford Australia head of macroeconomic forecasting Sean Langcake said underlying inflation is still “far too high” to start rate cuts, predicting the cash rate target will be on hold until midway through next year.

“The RBA will largely ignore the impacts of subsidies when weighing up interest rates next week,” Langcake said.

Data reveals inflation squeeze still on

As the below graph shows, almost all of the services Australians purchased over the quarter rose in price at a faster rate than the Reserve Bank’s 2 to 3 per cent target band.

Inflation continued to ease for restaurant meals, rents and medical services.

But there has been a re-acceleration in price growth for insurance, hairdressing and personal grooming.

Insurance premiums soared 14 per cent over the quarter – concentrated in home and vehicle premiums – while rent increases eased but still rose by a robust 6.7 per cent over the period.

Education costs, meanwhile, have continued to rise over the past year, with inflation clocking in at a whopping 6.4 per cent over the September quarter – more than double the target band.

Budget pressures across Australia’s grocery stores are also still difficult, though not as bad as things were a year ago.

Fruit and vegetable prices continued to be a pain point, rising 8.6 per cent over the quarter, while meat and seafood inflation has also accelerated from a 0.4 per cent fall in the June quarter to a 0.4 per cent rise over the September quarter.

Rate cut hopes dashed

Ahead of Wednesday’s inflation data some economists, notably the Commonwealth Bank, had still forecast the Reserve Bank to begin cutting interest rates before Christmas.

Headline CPI has now fallen into the top of the RBA’s 2 to 3 per cent target band.

But with underlying inflation rising 3.5 per cent over the quarter, that forecast is being jettisoned, with the vast majority of economists predicting no mortgage relief until 2025.

“A tight labour market, low productivity growth and strong government spending are factors that could keep inflation elevated,” EY chief economist Cherelle Murphy said.

“The Reserve Bank will keep rates on hold until early next year.”