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The Reserve Bank of Australia appears set to raise interest rates next month, after the average underlying annual inflation rate rose to its highest level in 16 years.
Australia's trimmed mean consumer price index (CPI) rose 1 per cent in the December quarter, for an annual growth rate of 3.4 per cent, the Australian Bureau of Statistics said.
The weighted median CPI rose 1.1 per cent in the December quarter, with an annual rise of 3.8 per cent.
The averages of the two measures, which the bank prefers, amounted to a quarterly rise of 1.05 per cent and an annual increase of 3.6 per cent.
The average annual underlying inflation rate was the highest since the September quarter of 1991, when the rate was 4.4 per cent.
Market economists had expected the average of the two measures to rise by 0.8 per cent in the December quarter for an annual rate of 3.3 per cent.
The headline CPI rose 0.9 per cent in the December quarter, for an annual rate of 3 per cent. The median market forecast was for a rise of 1 per cent in the December quarter and an annual pace of 2.9 per cent.
Commonwealth Bank of Australia senior economist John Peters said the Reserve Bank appeared set to raise the official cash rate in February by 25 basis points, to 7 per cent, after the bigger-than-expected inflation jump.
"Despite the volatility on global markets in the US, and the 75 basis point cut [to US interest rates] we think the case is there for the Reserve Bank to move on rates given the upbeat economic outlook.
"As expressed by [Reserve Bank] governor [Glenn] Stevens, these numbers pave the way for another rate rise in February," Peters said.
Higher petrol prices, capacity constraints and a tight labour market after 17 years of growth were increasing inflationary pressures.
- AAP
