Core inflation in Australia reached its fastest annual pace in seven years in Q4 2021. Australian Bureau of Statistics data published on Tuesday revealed the headline consumer price index increased 1.3% over the quarter and 3.5% for the year, exceeding forecasts and prompting early rate hike expectations.

The trimmed average measure of core inflation rose 1.0% in Q4, the largest rise since 2008. The annual pace hit 2.6%, surpassing the 2.3% forecast and the middle of the Reserve Bank of Australia’s (RBA) 2-3% target.

The RBA Board is meeting on 1 February, where most analysts assume rates will stay at 0.1%, but bond buying may come to an end, within its quantitative easing campaign, CNBC reports.

“The RBA is all but certain to end its asset purchase scheme at its meeting next week,” said Ben Udy, an economist at Capital Economics. “Our expectation for wage growth to firm up over the course of this year means the Bank should have enough evidence to hike rates by November.”

In addition, business confidence in Australia has taken a hit as soaring Covid cases impacted consumer spending and employment, however overall sales remain buoyant up to now.

A survey undertaken by National Australia Bank (NAB) published on Tuesday revealed its business confidence index fell 24 points to -12 last month, edging below the dip during the Delta wave in 2021.

Business conditions slid three points to +8 with sales remaining robust at +14 and profitability rising a point to hit +10. The pullback stemmed from the NAB’s gauge of employment which declined nine points to +2, says a Business Times report.

"It fell despite strong jobs growth reported in official data, reflecting the complexity of the labour market situation as businesses faced growing worker shortages and the prospect of a 'shadow lockdown' through the summer," stated National Australia Bank chief economist Alan Oster.

He went on to say: “With significant disruption to supply chains and labour markets, price pressures are to be expected and the key question will be how quickly, if at all, these pressures abate over coming months.”