SYDNEY: Australian consumer prices rose sharply in the third quarter as fuel costs rose again, while core inflation stayed uncomfortably hot and underscored market wagers for the year's fifth hike in interest rates.
Coupled with hawkish comments from its central bank chief, the inflation data led markets to imply an 85% probability that the Reserve Bank of Australia will lift the current 4.6% cash rate by a quarter point next Tuesday, up from 69% before.
The Australian dollar rose 0.3% to $0.7043 and 3-year government bond futures slid 7 ticks to 95.08.
Wednesday's data from the Australian Bureau of Statistics showed its consumer price index (CPI) rose 1.3% in the third quarter, after an increase of 0.6% the previous quarter. Annual CPI inflation ran at 3.9%.
The key trimmed mean measure of core inflation rose by 1.0% in the quarter, matching forecasts and keeping the annual pace at a lofty 3.6%, well above the Reserve Bank of Australia's target range of 2% to 3%.
Inflation data for September also ran hot, with CPI rising 0.8% from the previous month, lifting the annual pace to 4.3%.
Stubborn inflation already forced the RBA to lift interest rates four times this year to a 15-year high 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.
Now, with benchmark Brent crude oil up another 10% this quarter to trade above $110 a barrel, policymakers worry that could feed into the broader price pressures in the economy and inflation could risk becoming embedded in expectations after more than five years above target.
RBA Deputy Governor Andrew Hauser said earlier this month that the central bank knew the CPI data could come in hotter than it had forecast in August and the outcome would help shape its judgement on spare capacity in the economy and the inflation pressures stemming from it.
Wednesday's report showed new dwelling prices were flat in September, as some builders increased discounts in response to slowing new demand in the housing sector.
However, both goods and services inflation accelerated in September, up 4.6% and 4.1% respectively from a year earlier. - Reuters
