Investing.com-- Australian consumer inflation grew as expected in August, picking up pace from the prior month on surging energy and housing costs and spurring some bets that the Reserve Bank will need to hike interest rates further.
Consumer price index inflation grew 5.2%, as expected, in the 12 months to August, data from the Australian Bureau of Statistics showed. The reading accelerated from a 4.9% rise seen in July, but still remained well below annual highs.
Increased housing costs- amid more expensive new dwellings and surging rents- were the biggest contributors to August’s inflation increase. Fuel costs also shot up tracking an increase in global oil prices, although government subsidies on some energy expenses helped limit their impact on inflation.
Core CPI inflation- which excludes volatile items such as fresh food and fuel, along with holiday travel- eased to 5.5% in August from 5.8% in the prior month, indicating that some underlying inflation drivers in Australia were still easing.
But the inflation readings still remained comfortably above the Reserve Bank of Australia’s (RBA) annual 2% target, with the headline reading moving further away from the target.
This trend is expected to keep the RBA hawkish in the coming months, and could still elicit at least one more interest rate hike in 2023. The bank is expected to keep interest rates higher for longer, and has cited curbing inflation as its main agenda. The RBA also signaled that it was willing to let economic growth slow in the interim, as it moves against inflation.
The RBA only expects CPI inflation to reach its target range by mid-2025, and is expected to keep monetary policy tight in the interim. The bank had hiked rates by over 400 basis points over the last year, but has kept them on hold in the past four months, as the Australian economy cooled.
The Australian dollar rose slightly after the inflation reading, although fears of rising U.S. interest rates still limited any bigger gains.