SYDNEY -- Australian inflation raced to a 32-year high last quarter as the cost of home building and gas surged, a shock result that stoked pressure for a return to more aggressive rate hikes by the country's central bank.

Data from the Australian Bureau of Statistics (ABS) on Wednesday showed the consumer price index (CPI) jumped 1.8% in the September quarter, topping market forecasts of 1.6%.

The annual rate shot up to 7.3%, from 6.1%, the highest since 1990 and almost three times the pace of wage growth.

A closely watched measure of core inflation, the trimmed mean, also climbed 1.8% in the quarter, lifting the annual pace to 6.1% and again far above forecasts of 5.6%.

That would be unwelcome news to the Reserve Bank of Australia (RBA) which had thought core inflation would peak at 6.0% in the December quarter, with headline inflation topping at 7.75%.

Instead, analysts were warning that both core and headline measures were certain to spike even further this quarter with the ABS's new monthly CPI accelerating in September.

"The upshot is that CPI inflation will approach 8% in Q4," said Marcel Thieliant, a senior economist at Capital Economics.

"The stronger-than-expected rise in consumer prices is consistent with our forecast that the RBA will hike rates more aggressively than most anticipate."

ANZ raised its forecast for the cash rate to peak at 3.85% in May next year from 3.6% previously.

It is particularly ill-timed for the RBA since it surprised many this month by downshifting to a quarter-point rate hike, following four moves of 50 basis points.

Rates have already risen by a massive 250 basis points since May and the RBA had wanted to go slower to see how the drastic tightening was impacting consumer spending.

Food costs soar

Investors now suspected the central bank may have to reconsider, perhaps not at its policy meeting next week but rather in December.

Futures still imply a quarter point move on Nov. 1 to 2.85%, but now show some chance of a half-point hike in December and a peak for rates around 4.20% in July.

The European Central Bank and the Bank of Canada are both expected to hike by 75 basis points this week, while the Federal Reserve should match that at its meeting on Nov. 2.

Australia's Labor government bowed to inflation concerns this week by restraining spending in its 2022/23 Budget, despite calls for more cost-of-living support amid soaring prices. 

"Whether it's food, whether it's electricity, whether it's rent, inflation is public enemy number one. Inflation is the dragon we need to slay," was how Treasurer Jim Chalmers responded to the data.

There are also fears recent flooding across eastern Australia will lift food prices even higher, with supermarket chain Coles warning of declining volumes in fresh food where prices were up 8.8% on a year earlier.

Wednesday's CPI report showed food prices were already climbing at an annual pace of 9.0%, with the third quarter alone seeing a surge of 3.2%.

The ABS noted that annual inflation for essential goods and services leaped to 8.4% in the September quarter, highlighting the extent of cost-of-living pressures.