Inflation picked up in September and remains above four per cent on an annual basis for the eighth month in a row, a private sector survey shows.
The TD Securities-Melbourne Institute inflation gauge found headline inflation rose by 0.4 per cent in September, compared with an 0.1 per cent increase in August.
In the 12 months to September, headline inflation rose by 4.5 per cent, compared with 4.2 per cent in the 12 months to August, the survey said.
TD Securities senior strategist Joshua Williamson said inflation pressures remained elevated in September due to the falling Australian dollar and despite a slowing domestic economy and softer commodity prices.
"The inflation problem now confronting policy makers is apparent in the fact that not since May 2005 has inflation been below the middle of the RBA's target range," Mr Williamson said in a statement.
Prices rose in 32 expenditure groups and fell in 12, with the September increase mainly due to price rises for fuel, rents, and fruit and vegetables, the survey said.
In underlying terms, the gauge's measure of trimmed mean inflation - which strips out volatile items - rose 0.4 per cent in September, following an 0.2 per cent increase in August.
In the 12 months to September, the gauge found underlying inflation rose by 3.9 per cent, down from 4.3 per cent the previous month.
The RBA's focus is on the underlying measures of inflation - the weighted median and the trimmed mean.
The RBA wants inflation to return to its target band of between two and three per cent.
Mr Williamson said continuing high inflation suggested the cash rate would stay at seven per cent, but the RBA was likely to cut by 25 basis points due to the difficulties on credit markets.
"Tighter global financial conditions and increased downside global economic growth risks suggest a need to make monetary conditions less restrictive," Mr Williamson said.
"This means that the RBA will likely cut official interest rates by 25 basis points next Tuesday even though on inflation grounds, policy should remain on hold."
The RBA holds its October board meeting next Tuesday.
Professor Don Harding, who co-created the inflation gauge, said the chances of the RBA bringing inflation under control over the next two years was "rapidly diminishing".
"It seems that Australia is in for a period where inflation will reallocate wealth from lenders to borrowers," he said.
