Australian shares dragged down by interest rate fears after inflation data

Strong household spending and stubborn inflation have pushed money markets to price a coin-flip chance of another rate hike, sending the Australian sharemarket tumbling.

The benchmark ASX 200 dropped 89.60 points or 0.98 per cent to 9038.20, while the broader All Ordinaries gave up 95.60 points or 1.02 per cent to 9243.20.

Australia’s dollar firmed against the greenback, buying 71.83 US cents.

On an overall weak day of trading, just two sectors finished higher, while nine fell.

The falls were led by consumer discretionary, technology and the major miners.

Leading the falls was retail giant Wesfarmers which slumped 4.58 per cent to $79.46, on weaker than expected results, while JB Hi- Fi shares dropped 4.48 per cent to $66.02 and Harvey Norman fell 2.17 per cent to $4.50.

Accounting software provider Xero shares fell 2.60 per cent to $81.73, while WiseTech Global dropped 3.28 per cent to $39.55 and Technology One underperformed down 2.74 per cent to $31.64.

It was a mixed day for the major iron ore producers with BHP shares fell 1.48 per cent to $66.40, Rio Tinto slipped 0.52 per cent to $178.70, while Fortescue bucked the trend and added 0.85 per cent to $17.70.

Australia’s sharemarket dragged on Thursday, as strong household spending data added to Wednesday’s hotter than expected inflation reading, firming the case for another interest rate hike.

Australian Bureau of Statistics (ABS) figures released on Wednesday showed headline inflation dropped to 3.5 per cent from 3.8 per cent over the 12 months until July.

Money markets are now predicting a 50/50 chance of an interest rate hike to 4.60 per cent after the Reserve Bank meets on September 29.

Meanwhile, the trimmed mean inflation rate – which removes the top and bottom 15 per cent of items – remained unchanged at 3.6 per cent.

Adding to the case for a rate hike was stronger than expected household spending which was up 1.1 per cent in the month of July.

Three of the four major banks are now forecasting a rate hike by the end of the year, with Westpac yet to update its prediction.