Inflation jumps back to 4%. Are more interest rate hikes coming?

Inflation is back in focus on Wednesday after the latest Consumer Price Index (CPI) figures were released.

The Australian Bureau of Statistics (ABS) published its August inflation report this morning, giving investors plenty to digest.

The release comes just one day after the Reserve Bank of Australia (RBA) announced its latest interest rate decision.

With inflation still a key concern for the central bank, today’s numbers could play a part in where interest rates go next.

So, what did today’s numbers reveal?

Inflation climbs back to 4%

The latest figures showed headline inflation rose 4% over the 12 months to August, up from 3.5% in July.

Consumer prices also increased 0.4% during August, although that climbed to 0.7% on a seasonally adjusted basis.

Transport prices were a big part of the increase, rising 4.2% during the month and 5.6% over the past year.

Much of that came from automotive fuel prices, which jumped 14.8% in August and were 13.5% higher than a year ago.

Housing costs also remained high, rising 5.7% over the past 12 months, while education prices increased 4.7% and health costs climbed 3.9%.

Meanwhile, the underlying inflation figures were more stable.

Trimmed mean inflation, which removes some of the more volatile price movements, remained unchanged at 3.6% annually.

It was up just 0.2% during August.

Are more interest rate hikes coming?

Today’s inflation figures could give the RBA another reason to keep interest rates higher.

The central bank lifted the cash rate by 25 basis points to 4.60% yesterday, marking its fourth increase this year.

In its statement, the RBA said inflation remained too high and pointed to several risks that could keep prices elevated.

That included higher energy prices, continued capacity pressures in the economy, and businesses passing higher costs onto customers.

Today’s figures show some of those pressures are still hanging around, particularly with fuel prices jumping during August.

However, the unchanged trimmed mean figure of 3.6% suggests underlying inflation hasn’t moved higher.

The RBA has already made it clear that it is prepared to lift rates again if needed.

Foolish takeaway

From here, the next few inflation reports will be important.

Headline inflation is back at 4%, while underlying inflation remains above the RBA’s 2% to 3% target range.

For me, that keeps another interest rate hike firmly on the table.

The RBA has already shown this year that it is prepared to lift rates if inflation remains too high.

If inflation stays around these levels, borrowers could be facing another interest rate hike over the coming months.

The post Inflation jumps back to 4%. Are more interest rate hikes coming? appeared first on The Motley Fool Australia.

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Motley Fool contributor Aaron Teboneras has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.