Australian Inflation Surges, RBA Rate Hike Chances Rise

Australia's inflation rate rose more than expected in July as fuel and travel costs increased, according to data released on Wednesday. The Australian consumer price index (CPI) rose by 1.0% from June, exceeding forecasts of a 0.8% rise.

The annual pace slowed to 3.5% from 3.8%, countering expectations for a sharp slowdown to 3.3%. Core inflation also exceeded forecasts, increasing 0.5% in the month and leaving the annual pace at 3.6%.

Deutsche Bank is now calling for a quarter-point rate hike from the Reserve Bank of Australia (RBA) in September, citing fresh upside risks to inflation. Phil Odonaghoe, an economist at Deutsche Bank, said 'We think 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.'

The Australian dollar rose 0.2% to $0.7176 in response to the inflation data. 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%.