Australian Inflation Accelerates to 4.3 Percent Prompting Expectations of Rate Hike

Australia’s headline inflation rate accelerated to 4.3 percent in September, fueling market expectations that the Reserve Bank of Australia will raise interest rates when the board meets next week.

Data released Wednesday by the Australian Bureau of Statistics showed the consumer price index rose 0.8 percent in September, up from 0.4 percent in August, according to the agency.

The annual underlying inflation rate, a key metric for the central bank, climbed to 3.6 percent in September, exceeding the Reserve Bank’s target band of two to three percent.

The persistent price growth arrives as the central bank weighs whether to lift the cash rate from its current 4.6 percent, a level not seen in 15 years.

“It is clear pricing pressures in the Australian economy are growing, not weakening, and the upswing in inflation is catching the market off guard,” said Brendan Rynne, the chief economist at KPMG Australia.

Housing costs were the primary driver of the annual inflation increase, rising 5.2 percent, while transport costs climbed 9.4 percent due to higher fuel prices, the bureau reported.

Market analysts remain divided on the timing of further monetary tightening, with some experts suggesting the bank may wait until December to avoid a pre-Christmas burden on households.

“The only argument against a rate hike next week is the fact the RBA pre-emptively raised rates in September, so may feel it has a little more time to assess economic developments,” said David Bassanese, the chief economist at Betshares.

The prospect of higher borrowing costs has created uncertainty in the property sector, with some economists warning that further hikes could deepen the current national housing price downturn.

“No one knows when rates will peak and that’s a sticky point that enters seller and buyer decisions,” said Nerida Conisbee, the chief economist at Ray White Group.

Reserve Bank deputy governor Andrew Hauser recently described the inflation outlook as “materially worse” than previous forecasts, signaling that officials are prepared to act if price growth does not moderate.

The central bank’s board is scheduled to begin its policy meeting on Monday, with a final decision on interest rates expected to be announced on Tuesday afternoon.