Consumer inflation in Australia reached a six-month high in May, whilst a measure of core prices increased for a fourth month, leading markets to hike the chances of another rate rise this year.

The Australian Dollar rose 0.5% to $0.6684 at the time of writing, whilst the three-year bond futures fell 18 ticks to 95.93, a three-week low.

Markets now suggest a 60% chance of a quarter-point rate hike by the Reserve Bank of Australia (RBA) by November, up from virtually no probability prior to the latest data, Reuters reports.

A move could occur as early as August, depending on the results of the full Q2 CPI report.

In addition, futures also priced out any likelihood of a rate cut in the 4.35% cash rate this year, with the chance of a first easing postponed until late next year.

Data from the Australian Bureau of Statistics on Wednesday revealed that the monthly consumer price index (CPI) increased at an annual rate of 4.0% in May, up from 3.6% in April and significantly exceeding market expectations of 3.8%.

Furthermore, a closely watched measure of core inflation, the trimmed mean, rose to an annual rate of 4.4%, marking its highest level in six months and up from 4.1%.

UBS and Deutsche Bank now anticipate a rate hike in August, while the National Australia Bank has postponed its forecast for the first rate cut to May 2025, compared to its previous prediction of November 2024.

Chief economist at UBS, George Tharenou, forecasts the Q2 CPI will come in at a 1.1% quarterly rate, surpassing the central bank’s forecasts.

“Our new CPI forecasts make a rate hike in August a 'close call'... However, we see enough evidence to change our base case view," said Tharenou.

With inflation still above its target range of 2-3%, the RBA has cautioned that it remains vigilant to upside risks. It has kept interest rates steady at a 12-year high of 4.35% for five consecutive meetings.