CANBERRA, Australia (AP) -- Australia's central bank on Tuesday lifted its benchmark interest rate for a second time in five weeks, changing the cash rate to 0.85% from 0.35%.
When the Reserve Bank of Australia's lifted the rate by a quarter percentage point at its last monthly board meeting on May 3, it was the first rate hike in more than 11 years.
An increase was widely expected after official data released in April showed that Australia's inflation rose to 5.1% in the year through March. It is the highest annual rate since 2001, when a newly introduced 10% federal consumption tax created a temporary spike.
Treasurer Jim Chalmers on Tuesday foreshadowed more rate hikes, saying inflation in Australia would worsen.
"It's clear already that inflation will be significantly higher than the 5.1% it is currently," Chalmers told the Australian Broadcasting Corp. hours before the bank's rate decision was announced.
"Inflation will get worse before it gets better. That's the trajectory that we've inherited," Chalmers added.
A May 21 election put Chalmers' center-left Labor Party in power. It has criticized the level of debt accrued by the previous conservative administration.
Chalmers said he would update the nation on inflation when the Parliament resumes on July 26 for the first time since the election.
Reserve Bank Governor Philip Lowe said inflation was not expected to fall below 3% until next year.
The Reserve Bank of Australia adjusts interest rates to keep inflation within a 2%-3% target band.
"Inflation in Australia has increased significantly. While inflation is lower than in most other advanced economies, it is higher than earlier expected," Lowe said in a statement.
"Global factors, including COVID-related disruptions to supply chains and the war in Ukraine, account for much of this increase in inflation. But domestic factors are playing a role too, with capacity constraints in some sectors and the tight labor market contributing to the upward pressure on prices," Lowe added.
Inflation in the latest quarter was sharply higher than the 3.5% in the quarter before, driven by a surge in fuel and housing costs and damage to crops from recent floods.