The chance of another interest rate cut in November has been dealt a “knockout blow” by hotter-than-expected inflation numbers, economists say.

Underlying inflation rose 1 per cent in the three months to September, to hit an annual reading of 3 per cent.

Housing, recreation and culture, alcohol and tobacco, and communication had the biggest price increases over the most recent quarter, according to data from the Australian Bureau of Statistics on Wednesday.

Underlying or trimmed-mean inflation is the Reserve Bank’s preferred measure because it ignores volatile items such as power prices.

Across the economy more broadly, headline inflation rose to 3.2 per cent for the year to September, the first time it has left the RBA’s target band of 2-to-3 per cent in more than a year.

The increase to headline inflation has largely been put down to the roll-off of state power bill rebates, meaning many households have had to pay higher electricity prices.

Analysts were widely expecting consumer prices to rise, but the strong increase has caught many experts off guard.

Oxford Economics Australia lead economist Ben Udy said the central bank’s board would likely be wary of cutting interest rates while consumer prices were increasing so quickly.

“The 1.3 per cent quarter-on-quarter rise in the CPI was faster than the RBA had been anticipating and delivers the knockout blow to any remaining hope of a November rate cut,” he said.

The Reserve Bank has indicated it will examine the inflation data closely before making its next interest rate decision on Melbourne Cup day.

Economists still expect further rate cuts from the current level of 3.6 per cent, either in December or early next year.

Treasurer Jim Chalmers conceded inflation had increased but said it was still better than what Labor inherited.

“Underlying inflation has now been between 2 and 3 per cent for three consecutive quarters,” he said.

Shadow treasurer Ted O’Brien said government spending was making the economic situation more challenging for households and the Reserve Bank.

“You have a situation where both inflation and unemployment are above the RBA forecast, creating a diabolical situation,” he said in Canberra.

Australia’s sharemarket dipped after the release of the inflation data.

The benchmark S&P/ASX200 fell 76.2 points by midday, down 0.85 per cent, to 8936.3, as the broader All Ordinaries lost 71.1 points, or 0.76 per cent, to 9224.7. The top-200 began the day slightly below flat, but veered deeper into the red after the trimmed mean annual inflation figure came in at 3.0 per cent.

Only three local sectors were higher by lunchtime, as financials dragged on the bourse with a 1.1 per cent dip, with all big four banks grinding lower.

Raw materials was a lonely success story, up 0.8 per cent thanks to a broad sector rebound.

Drivers of the inflation rise:

* Electricity costs are the main culprit having risen 9 per cent in the previous quarter.

* All capital cities saw power price rises in July after annual price reviews took place.

* Households in NSW and the ACT also did not receive the extension of energy bill relief subsidies in July, affecting the cost of electricity in those places.

* Other big risers included recreation and culture as well as transport.

* Holiday travel and accommodation rose 2.9 per cent while fuel prices rose 2 per cent.

* Housing (5.6 per cent), food and non-alcoholic drinks (3.1 per cent) and alcohol and tobacco (5.5 per cent) were the main drivers of monthly inflation.

Household goods and services

* Higher prices for eating out and takeaway have elevated food inflation by 3.3 per cent compared to this time last year.

* The morning coffee run has also skyrocketed with a 14.6 per cent rise in coffee, tea and cocoa prices.

* Rent (3.8 per cent) and medical costs (5.1 per cent) continue to drive up services inflation.

–AAP