Inflation surged late last year to 7.8 per cent, its highest point since 1990, driven by big increases in the cost of flights, hotels and electricity.
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The relentless rise in prices, which have climbed almost 5 percentage points after bottoming out at 3 per cent in September 2021, comes despite aggressive action by the Reserve Bank of Australia to clamp down on demand by pushing the official cash rate from 0.1 per cent to 3.1 per cent since last May.
The result increases the likelihood that interest rates will rise further, beginning with a possible hike of at least 0.25 of a percentage point on February 7.
Despite the rise in prices, headline inflation in the December quarter was below the RBA's forecast of 8 per cent.
But the central bank's preferred measure of inflation, the trimmed mean (which excludes volatile items like food and fuel) jumped to 6.9 per cent, well above the 6.5 per cent it forecast for the end of 2022.
The growth and persistence of underlying inflation is expected to concern the RBA and signal that it has more work to do to tame inflation.
Adding to its worries is that the tight labour market (unemployment is at 3.5 per cent) could drive an unsustainable lift in wages as hard-pressed workers push for pay rises that more closely match the rise in the cost of living.
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But in setting its monetary policy, the RBA is also expected to pay attention to evidence that price of food and fuel both moderated late last year as supplies improved and unseasonably warm temperatures in northern Europe crimped energy demand.
Domestically, housing construction costs, which had been a major source of inflation pressure during much of last year, slowed sharply in the December quarter down to 1.9 per cent growth after reaching 4.7 per cent in the previous quarter.
Several economists think the Reserve Bank has more work to do to tame inflation and expect it to lift its cash rate by 0.25 of a percentage point to 3.35 per cent at its February 7 meeting, with the possibility of more increases after that.