By Stella Qiu and Wayne Cole
SYDNEY, Sept 30 (Reuters) – Australian inflation accelerated in August as fuel costs surged anew and price pressures remained broadly based, showing little impact as yet from a run of interest rate increases this year.
Sticky inflation already forced the Reserve Bank of Australia to lift interest rates to a 15-year high of 4.6% on Tuesday and warn it was ready to hike further if needed. That brought its tightening this year to a full percentage point, far ahead of many other developed economies.
The inflation print was, however, a little less than forecast, with the Australian dollar slipping 0.3% to $0.6964 and 3-year government bond futures rallying 8 ticks to 95.10. Swaps pared back the risk of a November move to just 20% from 35% before, but a final hike is still fully priced by early next year.
Data from the Australian Bureau of Statistics on Wednesday showed its monthly consumer price index rose 0.4% in August from July as fuel costs jumped 14.8% due to higher oil prices and the unwinding of government tax relief.
That came slightly under forecasts of a 0.5% gain, but the annual pace still pushed higher to 4.0% from 3.5%, well above the RBA’s target band of 2% to 3%.
The trimmed mean measure of core inflation increased by 0.2% in the month, leaving the annual pace steady at 3.6% for a third month. That has yet to slow down after the RBA kickstarted its tightening cycle in February.
“Sustained higher oil prices are bleeding through prices beyond the pump, maintaining upward price pressure on core goods and services,” said Harry McAuley, an economist for Oxford Economics Australia. “We expect this to continue into 2027.”
“A sustained period of oil above $100 per barrel presents upside risks for another hike in 2026.”
Wednesday’s report showed new dwelling prices jumped 5.4% in August from a year earlier as builders passed higher costs on to consumers. Electricity prices surged 13.2% from a year earlier.
The downward surprises came from clothing and travel, with demand for domestic travel easing following the end of a school holiday period.
FRONTRUNNING GLOBAL HIKING CYCLE
The RBA has out-hawked many of its global peers including the Federal Reserve and the European Central Bank, after three rate cuts in 2025 helped fuel domestic inflationary pressures. Now, with the US-Israeli war on Iran pushing energy prices higher for longer, policymakers worry inflation could become entrenched, having already run above target for five straight years.
Having hiked rates four times this year, RBA Governor Michele Bullock on Tuesday noted the long lags in monetary policy and said the central bank wanted to be more forward looking and observe what the four rate hikes would do to the economy.
That was partly why markets are not fully pricing in a move this year, but risks are still skewed to the upside.
One of the inflation risks the RBA has warned about is still building – Westpac is forecasting the data-centre investment boom would drive a 0.6% expansion in the economy this quarter, lifting annual growth to 2.3%, above the 2% limit that the central bank believes can be sustained without generating inflation.
“A November hike is now the base case, absent a lasting resolution of the Middle East conflict beforehand, or some other event that significantly lowers the outlook for energy-related costs in Australia,” said Luci Ellis, Westpac’s chief economist.
That would leave the housing market and mortgage holders bearing much of the pain. 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 the country in three decades.
Prices are already down 8% in Sydney and 7% in Melbourne this year, data from Cotality showed.
(Reporting by Stella Qiu and Wayne Cole; Editing by Jacqueline Wong and Thomas Derpinghaus)
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