Inflation in Australia during the last quarter hit a 21-year record, suggesting the central bank could raise interest rates sharply again.
The downbeat report comes a day before recently appointed Treasurer Jim Chalmers updates the previous government’s budget forecasts, and he is already warning that inflation will get worse before it get betters.
The centre-left Labor party won a general election in late May, wresting power from the centre-right Liberal-National party coalition, which had run the government since 2013.
Rates will need to more than double to bring the outbreak under control, analysts have said.
“It will be confronting,” Chalmers told reporters on the update. “Inflation revised up substantially, growth revised down and all of the implications that brings.”
Data from the Australian Bureau of Statistics showed the consumer price index (CPI) jumped 1.8% in the June quarter, just short of market forecasts of 1.9%.
Key Inflation Metric up 1.5%
The annual rate picked up to 6.1% from 5.1%, the highest since 2001 and more than twice the pace of wage growth.
A closely watched measure of core inflation, the trimmed mean, rose 1.5% in the quarter, lifting the annual pace to the highest since the series began in 2003 at 4.9%.
That took core inflation further away from the Reserve Bank of Australia’s (RBA) 2-3% target band and cemented expectations it would hike the 1.35% cash rate by 50 basis points at a policy meeting on August 2.
Markets are leaning against an RBA move of 75 basis points, though the US Federal Reserve is expected to raise rates by a similar amount later on Wednesday.
The RBA, like many central banks, was wrong-footed by the rapid pickup in inflation and has already had to raise rates three times, the most aggressive tightening in decades.
“The challenge now is calibrating the amount of tightening that will be needed,” Paul Bloxham, the head of Australian economics at HSBC, said.
- Reuters, with additional editing by George Russell