American Marconi Wireless News - Australian central bank lifts key interest rate to 15-year high

The Reserve Bank of Australia lifted its cash rate 25 basis points to 4.6 percent, it said, citing the broadening conflict and high global energy prices.

The rise of artificial intelligence is adding fuel to the inflation fire, driving up technology costs, it also said.

Economy minister Jim Chalmers told reporters the big factor for inflation was the re-escalation of the war in the Middle East.

"Our inflation challenge is being turbocharged by a war on the other side of the world," he said after the rates decision.

"Australians are paying a very hefty price for that war in the Middle East, and today that price became a bit steeper."

Higher fuel prices as the global oil supply continues to be disrupted were being passed through to prices of other goods and services, the bank said.

"The Middle East conflict has been a big shock and it has made us all poorer in this country," Reserve Bank Governor Michele Bullock said at a media briefing.

The longer the war lasts the more likely it is business will pass on costs to customers, she said, adding that the risks of the AI boom are also building as investment in data centres surges.

Although much technology is imported to Australia, constructing data centres increases local demand for workers and materials, Bullock said.

""But at the same time out there, there possibly is productivity gains -- when, I don't know," she added.

The bank statement said: "AI-related demand is driving rapid growth in global prices for technology-related goods."

Australia's major trading partners were experiencing stronger economic growth than expected, as AI-related investments outweighed the adverse effects of the Middle East conflict, it added.

Tuesday's hike is the fourth rate rise this year, adding to cost of living pressures felt by households by increasing home mortgage payments, a politically-potent topic in Australia.

Chalmers said the government had acted to ease pressures with tax cuts and reforms to make the housing market "fairer" for younger Australians.

Housing prices have fallen in most of Australia's state capitals and new housing loans have declined noticeably, the bank noted.

L.Davis--AMWN