The last quarter of 2022 saw inflation in Australia climb to a high of 33 years, primarily driven by the rise in the cost of electricity and travel.
This is a shocking result that only adds to the case for the Reserve Bank of Australia (RBA) to hike the interest rate once more in the coming month.
Investors have opted to narrow their odds sharply of the Australian central bank boosting its cash rate by 25 basis points to 3.35% in its meeting on February 7th.
This saw the Australian dollar rise to hit a high of five months at a value of $0.7085. Analysts had the opinion that there was a possibility of the RBA pausing its tightening cycle.
However, the latest inflation data has eliminated any such expectations. Even though this had widely been expected to be the peak of the latest hiking cycle, the RBA seems to have a hawkish stance.
This means that there is likely to be another interest rate hike in February and another would also come in March.
On Wednesday, the Australian Bureau of Statistics published data showing that there was a 1.9% increase in the consumer price index (CPI) in the December quarter, which saw it exceed market expectations of 1.6%.
The annual rate had been 7.3%, but it rose to 7.8%, which is the highest it has been since 1990. It grew at twice the pace of wages.
The CPI had stood at 7.3% in November, but climbed to 8.4% in December, as opposed to the same month a year earlier.
There was a broad-based increase in prices with the trimmed mean, which is a measure of core inflation, increasing in the December quarter by 1.7%.
As far as the annual pace is concerned, it exceeded the 6.5% forecasts to reach 6.9%. The service sector also saw cost pressures increase, as it saw its biggest rise after 2008.
Most of these were driven up due to takeaway food, meals out, and travel.
One of the primary cost culprits in the fourth quarter turned out to be travel, as there was a 13% increase in the prices for domestic holidays and an 8% increase in overseas trips.
Market analysts said that there had been strong demand for travel, particularly during the Christmas holiday season and this resulted in price rises for international airfares and domestic holiday travel.
They also asserted that the increases seen in international and domestic travel had turned out to be higher than historical movements in the same quarter.
As inflation pressures continue to increase more, it appears that markets have opted to price in two more hikes in the interest rate by the central bank.
The interest rate is expected to hit its peak at 3.60%, or higher. Three-year bonds’ futures reversed their course sharply as they dropped to 96.910, after they had climbed to 97.090 ahead of the CPI data.