(Bloomberg) —

Australia’s core inflation breached the top of the central bank’s 2-3% target for the first time since 2010, sending the currency higher and boosting the case for an interest rate hike just weeks out from an election. 

According to data from the Australian Bureau of Statistics, the annual trimmed average gauge, closely monitored by the Reserve Bank in its monitoring, increased 3.7% over the past three months, surpassing the forecast 3.4% rise. The quarterly average trimmed mean gauge grew 1.4%, against a predicted 1.2% rise. 

Swaps traders are now fully pricing in a 15-basis-point hike for next week’s RBA meeting that would lift the cash rate to 0.25%. After the report, both the Australian dollar and 3-year government bond yields advanced.

“Continued shortages of building supplies and labor, heightened freight costs and ongoing strong demand contributed to price rises for newly built dwellings,” said Michelle Marquardt, head of Prices Statistics at the ABS, said in a statement. “The CPI’s automotive fuel series reached a record level.”

This result increases pressure on RBA policymakers to lift off rate hikes. They have been accused of being behind the curve, given that global counterparts are already tightening. RBA signals that it is closer to its first increase, but most economists predict that the RBA will hold the cash rate at record low 0.1% next Wednesday in an effort not to embroil itself during the May 21 election.

Still, today’s strong report may be enough to prompt Governor Philip Lowe to abandon the RBA’s traditional political caution. Economists believe that the central bank will remain neutral on May 3, and make a huge 40-basis point move in June. Goldman Sachs Group Inc (NYSE:). This is the most recent example.

Inflationary pressures worldwide have been escalating, intensified by Russia’s war on Ukraine. Global supply chain disruptions driven by China’s stringent lockdowns to curb Covid-19 also suggest little prospect of an early abatement. 

This has led to a number of central banks, including Canada and New Zealand, to increase jumbo rates. The Federal Reserve is expected to follow their lead.

Lowe was one of the most dovish policymakers. He argued that elevated inflation is temporary and maintained that rates will remain at their current levels until wage growth accelerates. The governor made this month’s hawkish turn due to concerns that households might be accustomed to higher inflation.

Today’s data also showed:

• The annual increase in headline inflation was 2.1%, on a quarterly basis.
• The number of owner-occupiers buying new homes grew 5.7% while the price for automotive fuel increased 11% each quarter.
• In the March quarter price rises were observed in all non-food grocery product categories. These prices reflect a wide range of price pressures such as transport costs and disruptions to supply chains.
• Annually, 6.8% of the annual rise in the prices for tradables has been due to currency and global factors.
• Prices that are not tradeable, and largely affected domestic variables, such as utilities, rents, and other factors, rose an average 4.2% annually

(Additional Details from Report.

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