Inflation has soared to a three-month high of 4 per cent - increasing the chance of a November rate hike.

The consumer price index in August climbed sharply from July’s 3.5 per cent level, putting it above the Reserve Bank’s 2-3 per cent target for the 13th straight month and sparking fears of more pain on Melbourne Cup day.

Automotive fuel prices surged by 13.5 per cent over the year but during August alone, prices increased by 14.8 per cent leading to overall transport costs rising by 5.6 per cent on an annual basis.

This occurred as the Federal Government withdrew its 16-cent a litre fuel tax relief just before tensions escalated again in the Middle East as pushed average unleaded fuel prices back above $2 a litre.

Treasurer Jim Chalmers blamed the oil crisis for Australia’s inflation problem.

“These numbers confirm the overwhelming influence on inflation in August was higher global oil prices,” he said.

“All of the increase in annual headline inflation was from a combination of higher fuel costs and the unwinding of last year’s energy rebates.”

But the Australian Chamber of Commerce and Industry’s chief executive Andrew McKellar said domestic factors and not just higher oil prices were to blame for high inflation, echoing Reserve Bank governor Michele Bullock’s Tuesday point about “domestic capacity pressures”.

“While external pressures such as international fuel prices are a factor, Australia has a home-grown inflation problem which has been spilling into higher interest rates,” he said.

“The Government has the ability to address this home-grown inflation problem by reducing government spending and addressing the regulatory and red tape burdens that are driving up costs.

“The Government needs to act with a sense of urgency in these areas.”

Shadow treasurer Tim Wilson said high government spending was making Reserve Bank rate cuts a remote prospect with underlying inflation failing to moderate.

“That means that the Reserve Bank will have no temptation to ease the pressure on interest rates,” he told reporters in Melbourne.

“Meanwhile, the government continues to spend with gay abandon without any sense of understanding of the consequences that if they keep stoking inflation, Australian households are going backwards.”

Goods inflation rose by 4.2 per cent over the year, as a result of elevated crude oil prices, while services inflation went up by 3.7 per cent.

Underlying inflation without volatile price items was also elevated, rising by an annual pace of 3.6 per cent in August with the RBA’s preferred measure of price pressures also above target for the 13th consecutive month.

The Australian Bureau of Statistics delivered the bad news a day after the RBA on Tuesday increased interest rates for the fourth time this year to a 15-year high of 4.6 per cent and another increase on top of that on November 3 would take it to an 18-year high of 4.85 per cent.

“Essentially today’s data validates the RBA’s decision yesterday to raise rates as it shows inflation is still far from under control, leaving the RBA with no choice but to act,” KPMG chief economist Brendan Rynne said.

EY senior economist Paula Gadsby is also bracing for another rate hike by the end of the year.

“We expect the board may need to raise interest rates again before the end of the year if, as we expect, inflation momentum fails to moderate,” she said.

Despite the prospect of higher interest rates as a result of higher inflation, the Australian dollar paradoxically by 0.4 of a US cent to 69.60 US cents after the inflation data was released.