Australian inflation rose more than expected in the September quarter due to a sharp spike in fuel prices, sending the local dollar to a 4-1/2 month high as markets pruned back the chances of further interest rates cut this year.
However, despite the quarterly rise, the annual rate of inflation remained in the bottom half of the Reserve Bank of Australia's (RBA) 2-3 percent target band, suggesting there is still room to cut interest rates if push comes to shove.
(Read more: Is Australia's rate-cutting cycle over?)
"The headline readings are certainly above expectations, the underlying readings are relatively more restrained," said Savanth Sebastian, an economist at CommSec.
"But in general it's clear that inflation is still in check, holding towards the mid-point of the Reserve Bank's target band."