Australian Inflation Surges Higher, Rate Hike Odds Jump

Australia's consumer prices rose more than expected in July, driven by higher fuel costs. The annual inflation rate slowed to 3.5% from 3.8%, but core inflation exceeded forecasts, adding to the risk of another interest rate hike.

The Reserve Bank of Australia (RBA) held rates steady at 4.35% this month, but policymakers have warned that they would hike again if inflation risks build. The bank had forecast trimmed mean inflation to slow to 3.3% by year-end, but the July data suggests there is strong upside risk.

Traders are now pricing in a 38% chance of another rate hike this September, up from 17% before. ANZ economists, who previously forecast no change to interest rates, now expect a quarter-point rate hike in November.