Can the Resrve Bank swim against the global rising tide of interest rates?

I've been in a running debate with fellow ABC economics nerd David Taylor about what the Reserve Bank will do with interest rates on September 29: to hike or hold?

To this point, I've been firmly in the hold camp and DT has generally been in favour of a hike.

Our office argument is a microcosm of the same debate playing out in banks, trading rooms and probably at the RBA headquarters.

The traders have swung decisively to a rate hike, priced in at an 87 per cent probability according to LSEG data.

The economists are more divided. Of the big four banks, so far, only NAB has a September rate rise as its "base case", but the other three expecting the RBA to wait until November all acknowledge the September meeting is very much "live".

So, what are the main arguments for and against a September rate hike in Australia?

Australian inflation, like the US, is above our central bank's target band, which is 2-3 per cent here.

While the annual headline Consumer Price Index (the Australian Bureau of Statistics' key inflation measure) fell from 3.8 to 3.5% in July, that was higher than economists were predicting.

The RBA's preferred trimmed mean number, that strips out the most volatile price moves, also remained stuck at 3.6 per cent.

Moreover, the detail showed that services price rises remained stubbornly above the RBA's target, telling economists that there are domestic price pressures rather than just imported inflation from higher fuel costs.

Those inflation numbers, released in August, already had some economists pencilling in a rate rise for September, or at least the risk of one.

The Australian economy grew 2.1 per cent over the 12 months to June, once again a bit ahead of economist forecasts.

Historically, 2.1 per cent is a pretty mediocre annual growth rate for Australia, but the RBA now reckons the nation's economic speed limit is about 2 per cent, due to very weak productivity.

One of the factors driving growth over the past year has been a surge in business investment, mostly led by AI and related data centre construction .