The S&P/ASX 200 Index (ASX: XJO) wasn't having the best of days to start with.
The benchmark index was down 0.8% when the clock struck 11:30am AEST.
Then the latest Australian inflation data hit the wires.
And the ASX 200 sank another 0.4% in the minutes that followed.
Here's why.
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ASX 200 slides on stubbornly highly inflation
Consensus forecasts were for annual inflation to come in at 6.4% through to the end of April.
But the latest data just out from the Australian Bureau of Statistics (ABS) proved those forecasts to be optimistic.
Instead, the monthly Consumer Price Index (CPI) indicator increased at a hot running 6.8% in the year to April.
And ASX 200 investors reacted by hitting the sell button.
On the plus side, Australia's inflation is coming off the boil, having reached a high of 8.4% in December.
Still, the 6.8% annual increase reported today is higher than the 6.3% annual rise the ABS reported last month.
ABS head of prices statistics Michelle Marquardt said part of the reason inflation is running hot is high fuel costs.
It's important to note that a significant contributor to the increase in the annual movement in April was automotive fuel.
The halving of the fuel excise tax in April 2022, which was fully unwound in October 2022, is impacting the annual movement for April 2023.
Also driving the higher-than-expected level of inflation that's pressuring the ASX 200 today was an 8.9% increase in housing and a 7.9% increase in food and non-alcoholic beverages.
Transport costs also increased by a painful 7.1% while recreation and culture saw a 6.4% increase.
Odds of another RBA rate hike just went up
With Australia's inflation surprising to the upside, and well above the Reserve Bank of Australia's (RBA) 2% to 3% target range, the odds of another interest rate hike from the central bank just went up.
That's likely seeing some repositioning and selling on the ASX 200 today.
On 2 May, the RBA surprised markets by increasing the official cash rate by yet another 0.25%. The cash rate is currently at 3.85%, up from the rock-bottom low of 0.1% last May.
RBA governor Philip Lowe will announce the bank's next rate decision on 6 June.
The central bank may still opt to pause its tightening cycle. But the latest inflation data suggests to me that ASX 200 investors should prepare for at least one more interest rate increase in 2023.
