Australian consumer inflation picked up for the fourth consecutive month in October, according to newly released data on Wednesday.

The hotter-than-expected figures have led markets to abandon hopes of further policy easing and even consider the possibility of a rate increase.

The Australian Dollar climbed 0.5% to $0.6502, while three-year government bond yields jumped 11 basis points to 3.855%, their highest level since February.

Investors have sharply reduced expectations that the Reserve Bank of Australia (RBA) will implement a final rate cut in May next year, with the probability dropping to just 8% from 40% previously, while the chance of a rate hike by year-end has risen to 32%.

According to the Australian Bureau of Statistics (ABS), the consumer price index (CPI) rose 3.8% year-on-year in October, the highest in 10 months and above the median forecast of 3.6%.

This reflects a steady rise from June’s low point of 1.9%.

The trimmed mean, a key gauge of core inflation, rose to 3.3% year-on-year in October, up from 3.2% in September, signalling that inflation remains above the level the RBA aims for.

“All up, it's a pretty ugly inflation print,” according to Harry Murphy Cruise, head of economic research for Oxford Economics Australia.

“For the RBA, this keeps cuts off the table. In fact, a hike can't be ruled out.”

This is the first full monthly CPI report released by the ABS, replacing the previous partial series. However, the RBA continues to favour the quarterly figures, which are seen as a more reliable indicator of inflation trends, given that the new monthly data can be volatile, Reuters reports.

Headline inflation jumped to 3.2% in the last quarter, pushing above the 2–3% target band and raising concerns that monetary policy may not remain restrictive after three rate cuts this year. Meanwhile, home loan activity surged and consumer sentiment turned positive for the first time in four years.

The report indicated that the recent rise in inflation has been broad-based, with the services sector experiencing notable price pressures. Services inflation accelerated to 3.9% year-on-year in October, up from 3.5% in September.

Whereas housing inflation climbed to 5.9% year-on-year in October, up from 5.7% previously, despite government electricity rebates partially offsetting costs for some households during the month.

“The Reserve Bank needs to reverse the recent trend and get inflation moving back to the midpoint of the target band, while knowing that the full impact of the three rate cuts delivered this year so far have not been fully felt,” said EY chief economist, Cherelle Murphy.

“A rate hike may even be considered (in December) given the next Monetary Policy Board meeting is not until February.”