SYDNEY: Australia’s core inflation accelerated to the fastest pace since 2009, prompting traders to price in an interest-rate increase at Tuesday’s central bank meeting that’s being held just weeks out from an election.

       The annual trimmed mean gauge that smooths more volatile items breached the upper end of the Reserve Bank of Australia’s (RBA) target to hit 3.7%, official government data showed.

       The result has swaps traders now fully pricing in a 15-basis-point hike at the RBA May 3 meeting and the currency gained.

       The result intensifies pressure on the RBA to abandon its traditional political caution and initiate rate liftoff ahead of the May 21 election.

       The central bank, which targets consumer prices of 2% to 3%, signalled earlier this month that a hike would likely come soon.

       Cherelle Murphy, chief economist at Ernst & Young LLP, said the central bank couldn’t afford to wait for the outcome of the wages data on May 18.

       “A record low cash rate of 0.1% is clearly now no longer appropriate for this economy, meaning the RBA must join other central banks around the world and tighten monetary policy,” she said.

       “To not do so risks the RBA losing credibility.”

       The consensus among economists had been that the board would stand pat next week.

       A small but growing number saw the RBA then delivering an outsized 40-basis-point move in June, with Goldman Sachs Group Inc the latest to do so.

       “We have moved our call,” said Diana Mousina, senior economist at AMP Capital Markets Ltd, which now expects a 15 basis points rise next week followed by a 25 basis point hike in June.

       “There is a risk that they go by 40 basis points taking the cash rate to 0.5% next week.”

       Inflationary pressures worldwide have been escalating, intensified by Russia’s war on Ukraine and the accompanying fallout on commodity and energy prices.

       Lowe had been among the more dovish policy makers, arguing elevated inflation was transitory and maintaining that rates would remain on hold until local wage growth accelerated.

       However, the risk of expectations of higher inflation becoming entrenched among households prompted a hawkish pivot this month from the governor.

       “While the current price surge largely reflects supply disruptions – stemming from the Omicron outbreak, flooding, and the conflict in Ukraine – the potential shock to inflation expectations is likely to see the RBA raise rates even before wage growth materialises,” said economist James McIntyre.

       Global supply chain disruptions driven by China’s stringent lockdowns to curb Covid-19 also suggest little prospect of an early abatement in inflation.

       China is Australia’s largest trading partner and risks to its outlook may be a reason RBA governor Philip Lowe to opt for caution.Still, price pressures have prompted a host of central banks including those in New Zealand and Canada to deliver jumbo rate hikes, with the Federal Reserve potentially set to follow suit. — Bloomberg