Breaking: Headline inflation jumped to 4 per cent in August, up from 3.5 per cent in July - ABC News & Headlines – Australian Broadcasting Corporation

Annual headline inflation hit 4 per cent in August, up from 3.5 per cent. (ABC News: Sharon Gordon)

Headline inflation jumped to 4 per cent in August, from 3.5 per cent in July, driven by higher housing costs and automotive fuel prices.

But underlying inflation remained at 3.6 per cent for the third month in a row.

The Reserve Bank lifted interest rates this week, to 4.6 per cent, and some economists think another rate rise is likely.

News figures show annual headline inflation jumped to 4 per cent in August, up from 3.5 per cent in July.

Trimmed mean inflation, the Reserve Bank's preferred measure of underlying inflation, remained steady at 3.6 per cent for the third month in a row.

The news comes a day after the Reserve Bank lifted interest rates for the fourth time this year, to their highest level in 15 years, to try to drag inflation down and stop high inflation becoming embedded in Australia's economy.

According to the Bureau of Statistics (ABS), housing was the largest contributor to annual inflation last month, reflecting rising costs for new dwellings and electricity.

"New dwelling prices rose 5.4 per cent in the 12 months to August as builders passed on higher costs for materials and labour," Rachael McCririck, ABS head of price statistics, said.

Transport was the second-largest contributor to annual inflation, due to higher automotive fuel prices.

"On a monthly basis, automotive fuel prices rose 14.8 per cent in August, compared to a rise of 7.5 per cent in July," Ms McCririck said.

"This was driven by higher world oil prices and the unwinding of the remainder of the federal government's fuel excise relief measures in August."

On Tuesday, the RBA's Monetary Policy Board increased interest rates by 0.25 percentage points, which lifted the cash rate target to 4.6 per cent, up from 4.35 per cent.

In a press conference on Tuesday, RBA governor Michele Bullock said underlying inflation had been sitting around 3.5 per cent for the last six months and the RBA wanted to drag it down.

"That's telling us what's happened in the past," she said.

"We can't influence that. That's what happened. So we now need to make sure that we have financial conditions tight enough to try to bring that down.

"We raised interest rates three times earlier this year, a lot of that effect is still to flow through … What we are predicting, what is the hope here, is that [four] interest rate increases will bring things down.

"Will it be enough? I don't know," she said.

KPMG chief economist Brendan Rynne said today's inflation data validated the RBA's decision to lift interest rates on Tuesday.

"Today's inflation print shows a stubbornness that requires more drastic policy action, importantly both monetary and fiscal policy working together, in order to bring inflation back down to the RBA mid-point target of 2.5 per cent," he said.

He also backed the argument that Australia needed higher unemployment to drag inflation down.

"Much has been spoken this week about the need for the labour market to cool further to assist in the taming of inflation, with the RBA governor suggesting the unemployment rate may need to move to within the 5 per cent band in order for domestic demand to slow sufficiently enough to retard inflation," he said.

"Today's CPI data reinforces this policy target as it shows the capital city with the lowest inflation outcome, Melbourne (3.5 per cent) is also the one with the highest unemployment rate (5.2 per cent)."

EY senior economist Paula Gadsby said that on a six-month annualised measure, trimmed mean inflation was running at 3.9 per cent in August, which was higher than the 12-month measure of 3.6 per cent.

She said that underscored the challenge the Reserve Bank faced.

"We expect the board may need to raise interest rates again before the end of the year if, as we expect, inflation momentum fails to moderate," she said.