Higher consumer prices in the last three months were posted in Australia and this has been indicated in the July inflation index compiled by TD Securities Inc. and the Melbourne Institute released in Sydney on Monday.

Consumer prices gained 3.2 percent in the year through July after a 2.9 percent increase in June, the report said, driven by higher fruit, vegetable and utility costs.

The known gauge of Australia's annual inflation rose beyond the central bank's target between 2 to 3 percent, asserting further pressure on Monetary Board officials of the Reserve Bank of Australia set to meet tomorrow.

Analysts are torn whether the central bank will raise or slash rates, although the direction of the interest rate swaps had been indicative that the RBA will raise overnight cash rates to 5 percent from 4.74 percent. The Credit Suisse Group AG index of swaps shows there's a one-in-five chance the RBA will do this.

On the other hand, another swaps gauge indicates the RBA will cut Australia's benchmark rates 0.18 percentage point in the next 12 months. Bloomberg said that the last time that the interest rate swap markets cast a split vote was in July 2008--two months before the collapse of Lehman Brothers Holdings Inc.

According to Annette Beacher, head of Asia Pacific Research at TD Securities in Singapore, "the declining credit growth and tempered consumer spending have overshadowed the private sector investment boom."

She noted that this clearly points to the two-speed economy taken b y Australia.

Factory Slump

A gauge of Australian manufacturing released on Monday dropped to a two-year low in July. Business and consumer confidence have dropped while inflation accelerated last quarter to the fastest annual pace in three years, fuelled by a mining boom that has helped drive the currency to a record.

Today's inflation report showed the price of fruit and vegetables rose 1.8 percent in July and utilities costs advanced 4 percent. These were offset by falls in auto, visual and computing, clothing and footwear, and rents, it showed.

"We believe the RBA tomorrow can leave the cash rate unchanged at 4.75 percent whilst discussing these conflicting pressures, leaving the stance of monetary policy as 'mildly restrictive' for longer," Ms Beacher said. "However, as we are of the view that offshore headwinds will abate, we forecast one more rate rise this year to 5 percent, and we continue to pencil in November as the most appropriate month."

The Melbourne Institute is a research unit of Melbourne University, and TD Securities is a division of Toronto-Dominion Bank, Canada's second-largest lender. The monthly inflation index measures the prices of more than 1,000 goods and services.