Australia's August Inflation Surge Pushes Interest Rate Hike Expectations

Australia's Consumer Price Index (CPI) rose 4% in the 12 months to August, according to data from the Australian Bureau of Statistics (ABS). The increase was driven by higher fuel costs, which surged 14.8% after full fuel excise rates were restored on August 3.

Rachael McCririck, ABS head of price statistics, said the rise in fuel prices was due to higher world oil prices and the unwinding of the federal government's fuel excise relief measures. Fuel prices also pushed transport inflation up to 5.6%.

Trimmed mean inflation, which excludes fuel price impact, held steady at 3.6% for the third consecutive month. The August CPI was released a day after the Reserve Bank lifted the cash rate by 25 basis points to 4.60%. Inflation has been above the mid-point of the target for almost five years.

RBA Governor Michele Bullock acknowledged that while the timing of August CPI was not ideal, she said what it would do was 'confirm' what they already know. The figures also reinforce the RBA's view that inflation pressures are not solely being driven by events overseas.