In an effort to blunt inflation early on, the Reserve Bank of Australia has lifted the cash rate by 50 basis points, the largest single increase in more than 20 years.

"At its meeting today, the board decided to increase the cash rate target by 50 basis points to 85 basis points. It also increased the interest rate on Exchange Settlement balances by 50 basis points to 75 basis points," the RBA said.

"Inflation in Australia has increased significantly. While inflation is lower than in most other advanced economies, it is higher than earlier expected," the central bank continued.

In making its June rate call, the board reflected on wages data but it also reaffirmed that having already entered inflation fighting mode it would reduce emphasis on the wage price index over the coming months.

Last month, inflation spiked to its highest level in over two decades and while a blow out was predicted, economists didn’t quite expect such a sizeable jump in both the headline and underlying inflation rate.

Following the inflation shock, the RBA upped its forecast for 2022, predicting headline inflation of around 6 per cent and underlying inflation of around 4.75 per cent. These are up from 3.25 per cent and 2.75 per cent respectively.

By mid-2024, the bank is expecting headline and underlying inflation to moderate to around 3 per cent.