Australian Inflation Rises Sharply in July, Fueling Rate Hike Fears

Australia's inflation rate surged in July, outpacing expectations and raising concerns about potential interest rate hikes. The country's consumer prices index rose by 1% in July from June, exceeding forecasts of a 0.8% increase. Fuel costs jumped by 7.5%, after falling for three consecutive months.

The annual inflation rate slowed to 3.5% from 3.8%, countering expectations for a sharp slowdown to 3.3%. Core inflation also increased, with the trimmed mean measure rising by 0.5% in July, its largest increase in a year.

The Reserve Bank of Australia (RBA) held interest rates steady at 4.35% this month, but policymakers have warned that they would hike again if inflation risks build. The RBA's minutes from the previous meeting showed several board members judged it was possible for upside inflation risks to materialise, requiring further tightening.

Market participants now see a higher chance of another rate hike next month, with some analysts predicting a quarter-point increase in September. Deutsche Bank is calling for a rate hike in September, citing fresh upside risks to inflation.