Australia's Stubborn Inflation Defies Rate Hikes

Australia's inflation rate remained stubbornly high in August, defying the Reserve Bank of Australia's (RBA) recent interest rate hikes. The consumer price index rose 0.4% from July to August, with fuel costs jumping 14.8% due to higher oil prices and the unwinding of government tax relief.

The annual inflation pace increased to 4.0% from 3.5%, well above the RBA's target band of 2% to 3%. The trimmed mean measure of core inflation remained steady at 3.6% for a third month, indicating that prices are still increasing across various sectors.

RBA governor Michele Bullock has warned that the central bank is ready to hike interest rates further if needed to curb inflation expectations. Markets had initially priced in a lower probability of another rate hike in November, but economists now believe it's more likely, with some forecasting a 4.85% terminal rate.

The housing market and mortgage holders are expected to bear the brunt of the pain as prices continue to rise. The RBA has flagged housing as a downside risk to the economic outlook, and its latest rate hike is likely to trigger the worst housing downturn in three decades.