Australian Inflation Surges, Fueling Rate Hike Fears

Australia's inflation rate rose more than expected in July, with fuel and travel costs increasing significantly. According to data from the Australian Bureau of Statistics (ABS), the consumer price index (CPI) rose by 1.0% in July from June, exceeding forecasts of a 0.8% rise.

The annual pace slowed to 3.5% from 3.8%, but core inflation increased 0.5% in the month, the biggest increase in a year and well above forecasts for 0.3%. The trimmed mean measure of core inflation left the annual pace at 3.6%.

The Reserve Bank of Australia (RBA) held interest rates steady at 4.35% this month for a second consecutive meeting after three rate hikes this year aimed at taming inflation. However, market participants nudged up the chance of a fourth rate hike from the RBA next month to 36% from 17%, while a move by February next year is now priced at 94%.

Deutsche Bank economist Phil Odonaghoe said that the July CPI 'leaves little room for the RBA to do anything other than follow-through on its hawkish posturing, and the earlier it does, the better.'