Australian Inflation Higher than Expected

Australian inflation hit a stronger-than-expected 0.8 percent in October-December from the previous quarter, official figures showed on Wednesday, dampening hopes of an interest rate cut.

Economists had anticipated a quarterly rise in the consumer price index (CPI), a key measure of inflation, of about 0.5 percent after it hit 1.2 percent in the previous three months.

The Australian Bureau of Statistics said the CPI rose 2.7 percent year on year, from 2.2 percent in July-September.

The annual rate is towards the top of the central Reserve Bank of Australia's preferred range of 2.0-3.0 percent, and analysts said it could deter a further cut in the official cash rate, which is already at a historic low.

"I think it puts a lid on further RBA cuts," said Invast chief market analyst Peter Esho.

The statistics bureau said the most significant increases for the quarter were in domestic and international holiday travel, and accommodation which were lifted by peak season prices.

The cost of fruit and vegetables also jumped after a number of adverse weather events and deteriorating growing conditions in some areas, while rising building materials and labor costs pushed the price of new homes.

The bureau said the only significant fall was in car fuel.

The Australian dollar rose to 88.58 U.S. cents after the data, from 88.19 U.S. cents Tuesday.

The RBA has kept interest rates on hold since cutting the official cash rate to 2.50 percent in August in a bid to stimulate the economy as a decade-long Asia mining splurge cools.

AMP Capital chief economist Shane Oliver said the inflation rate had again surprised on the upside, with the 15 percent fall in the Australian dollar over the past year appearing to be a factor driving prices higher.

"This is clearly a disappointing outcome and substantially reduces the possibility of another rate cut from the RBA," Oliver said.

However, he added that while the RBA will be concerned about the latest data, it is unlikely to hike interest rates as the headline and underlying figures are within its target range while normal volatility may have also been to blame.