Core inflation exceeding expectations combined with officials collectively turning hawkish: the Reserve Bank of Australia may raise rates for the fifth time this year next week.

Note that Australia's inflation data released on Wednesday came in above expectations, combined with hawkish comments from RBA officials, fueling market expectations that policymakers will deliver the fifth rate hike this year when they meet next week. CPI rose 1.3% last quarter from the previous three months, exceeding the 1.2% expected gain; September CPI rose 4.3% year-on-year, above the 4.2% forecast. Government data showed consumer prices accelerated last quarter and exceeded market expectations. Just minutes before the data were released, RBA Governor Michele Bullock told lawmakers that inflation risks remain. "The international and domestic upside risks to inflation have materialized or are materializing," she said in opening remarks to a Senate committee. "As a result, it is likely that inflation will be higher than the baseline scenario we set in August." The string of hawkish signals pushed expectations for a rate hike at next week's RBA meeting to nearly 90%, while the Australian dollar rose as much as 0.4% and the policy-sensitive three-year government bond yield climbed as much as 8 basis points. Belinda Allen, an economist at Commonwealth Bank of Australia, said the bank now expects the Reserve Bank of Australia to raise rates to 4.85% in November. "The recent RBA communication has corrected the message from the dovish press conference after the September hike and turned hawkish, focusing on upside inflation risks from abroad and concerns about domestic capacity pressures," Allen said. "I think we can safely lock in this hike," said Robert Thompson, head of economics and rates strategy at RBC in Sydney. "Given the RBA's recent rhetoric and the worrying details in this report, I would be shocked if the RBA did not raise rates. The core measures are too high, and key components such as market services excluding volatile items rose again." The RBA delivered its fourth rate hike this year last month in response to signs that accelerating inflation risks were beginning to emerge. The CPI report indicates the central bank may need to tighten policy again at its November 2-3 policy meeting to try to bring inflation back into its 2%-3% target range. Data released Wednesday by the Australian Bureau of Statistics showed the RBA's preferred core inflation measure, the annual trimmed mean of consumer prices, rose 3.7% last quarter, faster than the previous three months and above economists' 3.6% forecast. On a quarterly basis, core prices rose 1%, in line with expectations. "The data today confirm the concerns the RBA has expressed in recent weeks. Progress in lowering inflation has stalled. The RBA has little appetite to let inflation expectations continue to rise," said Stephen Smith, a partner at Deloitte Access Economics. Last week, RBA Deputy Governor Andrew Hauser said the inflation outlook looked "materially worse" than the RBA's forecasts in its August monetary policy statement. The central bank will release updated economic projections alongside next week's rate decision. However, despite the hawkish lean of RBA officials, the nine-member rate-setting board includes six independent directors who may hold different views. AMP economist My Bui detected signs of weakening economic conditions in the CPI report. "I expect a split vote at this meeting rather than a unanimous one. Still, I think their messaging will remain quite hawkish, because their primary focus is inflation," she said. Australian fuel prices remain elevated The global oil shock remains a persistent threat to the RBA's fight against inflation, and prospects for a near-term end to the US-Iran war remain slim. "Elevated fuel prices have driven the surge in headline inflation, and inflation is likely to spill over increasingly into the broader goods basket as businesses pass on higher transport costs. Underlying inflation is clearly above the RBA's August forecasts, which points to an upward revision to its outlook and another 25 basis point hike on November 3," said economist James McIntyre. Even so, the Federal Reserve and its counterparts in the euro area and Japan are likely to hold steady this week, choosing to wait and see before any further rate increases. The three-day decision-making starting Wednesday in Washington will likely confirm a hawkish stance balanced at a measured pace, as policymakers face a range of inflation risks from soaring energy prices to the artificial intelligence boom. Closer to home, the Reserve Bank of New Zealand unexpectedly kept borrowing costs unchanged on Wednesday, surprising the market.