Australia inflation stubbornly high in August, defying run of rate hikes

Inflation in Australia remained stubbornly high in August, defying a string of interest rate increases. The monthly consumer price index rose 0.4% from July as fuel costs surged 14.8% due to higher oil prices and the removal of government tax relief. Annual inflation accelerated to 4.0%, well above the Reserve Bank of Australia's 2% to 3% target band.

The trimmed mean measure of core inflation also rose by 0.2% in August, keeping the annual pace steady at 3.6% for a third month. Economists expect higher oil prices to continue feeding price pressures on core goods and services for another two years. The Reserve Bank of Australia hiked its policy rate to a 15-year high of 4.6% on Tuesday, warning it may raise rates further if needed.

Since February, the central bank has raised rates by a full percentage point, outpacing many other developed economies. While the latest inflation data was slightly below forecasts, the risk of a November rate hike remains fully priced in. Westpac forecasts a 0.6% economic expansion this quarter, driven by a data-center investment boom, which could push annual growth to 2.3%.

The central bank sees housing as a downside risk, warning that the latest rate hike could trigger the worst housing downturn in three decades, with Sydney and Melbourne prices down 8% and 7% respectively this year.