The Reserve Bank of Australia (RBA) is firmly focused on inflation and is expected to hike the cash rate by 25 basis points to 4.60% in September then hold steady to mid-2027, BofA Securities said in a note on Wednesday.

The labor market conditions are still tight and underlying inflation is accelerating, BofA said. Inflation pressures are becoming increasingly broad-based, with strength increasingly concentrated in persistent components and evidence of second-round effects from higher energy costs.

The signal in the July consumer price index led to an increase in BofA's September quarter trimmed mean forecast to 0.93% on a quarterly basis, with risks skewed towards a 1% rise. Annual core inflation is expected to remain sticky above 3% until mid-2027, per the report.

The risks skew towards more hikes and a higher-for-longer cash rate as inflation pressures are broadening, becoming more persistent, and increasingly inconsistent with target, BofA said.

The investment firm forecasts a 10% peak-to-trough decline in house prices, with the downturn becoming a disinflationary force in 2027 before housing conditions begin to stabilize as expectations of RBA easing build.