Wayne Cole

SYDNEY(Reuters) – Australian consumer price surges were the most rapid in over two decades. Petrol, homebuilding, and food prices all rose, leading to speculation about interest rate increases as early as next week.

This would not be good news for Scott Morrison, Prime Minister of Canada. He is currently fighting a difficult election in which the increasing cost of living is a major issue with voters.

It strongly believes that the Reserve Bank of Australia should not keep interest rates at their emergency lows of 0.1%. They should tighten up soon and perhaps at its policy meeting of May 3, rather than in June.

The odds of a hike to 0.25 percent were quickly reduced by the markets, but many remain in favor of a June increase due to political implications.

Futures were also priced at 0.5% in June.

Andrew Boak (an economist at GS Macro) stated that “we now expect the RBA’s initial hike to be 40bp or 0.5% in May.” He saw a series of quarter-point moves towards a eventual peak of 2.5%.

“The combination of high inflation above target, an economy initially resilient for hikes and a more aggressive reaction function leads to higher rates.

The data Wednesday provided a painful read as the Consumer Price Index (CPI), which rose 2.1% during the first quarter of the year, surpassed market expectations for a 1.7% rise.

Annual pace increased to 5.1% from 3.5% during the last quarter. It was the fastest rate since 2001.

Core inflation was closely tracked by the Trimmed Mean, which rose to a new record of 1.4% in quarter. The annual pace is now at 3.7%.

This was the first time that core inflation surpassed the Reserve Bank of Australia (RBA), 2-3% target range, which is a significant turnaround after recent years of consistently falling.

Michelle Marquardt from the Australian Bureau of Statistics, head of the prices statistics, stated that this reflected “the broad-based nature of the price rises as well as the effects of supply disruptions and rising shipping costs”

Petrol led the way with 35% year-over-year gains, while new homes costs rose a staggering 13.7%. High transport, fertiliser and packaging costs drove an increase in food prices during the first quarter.