Annual inflation in Australia jumped to 3.8% in the year to December, up from 3.4% in November, according to the Australian Bureau of Statistics. The rise, driven by strong underlying price growth, has increased expectations that the Reserve Bank of Australia (RBA) will raise interest rates at its monetary policy meeting next Tuesday.
Economists at ANZ now predict a rate hike, the first since November 2023, describing it as a single 'insurance' tightening rather than the start of a series. All four major Australian banks anticipate a rate rise. The probability of a hike jumped to 75% following the inflation report, up from 60% beforehand, according to NAB.
The inflation surge was partly driven by a 21.5% increase in electricity prices as subsidies expired in Queensland and Western Australia. Housing costs, including a 3.9% annual rise in rents, also contributed. Brisbane recorded the highest inflation at 5.2%, followed by Perth at 4.4%. Food and non-alcoholic drink prices rose by 3.4%.
Treasurer Jim Chalmers denied that government spending was adding to inflationary pressures, pointing to a private sector recovery. Opposition leader Sussan Ley said families were struggling under Labor. The RBA's preferred trimmed mean measure rose to 3.4% from 3% in the September quarter, exceeding expectations.
The Australian dollar briefly rose above US70 cents following the data release, reflecting shifting rate expectations.
