Australia’s economy grew at its quickest pace in nearly two years during the third quarter, although it slightly fell short of analysts’ forecasts. This growth was fueled by robust investment and strong consumer demand.

The nation’s GDP recorded a 2.1% increase compared to the previous year, representing its most significant growth since the third quarter of 2023 when it also rose at the same rate, according to data released on Wednesday by the Australian Bureau of Statistics. Economists had anticipated a GDP growth of 2.2%.

In terms of quarterly performance, Australia’s GDP saw an increase of 0.4%, which was below the 0.7% growth predicted by a Reuters poll.

Harry Murphy Cruise, head of economic research and global trade at Oxford Economics, reassured that the slight miss in expectations does not indicate a substantially weaker economy. He pointed out that when excluding inventories and trade, domestic economic activity surged by 1.2% from the previous quarter, marking the most rapid expansion in over two years.

Echoing that view, Sunny Nguyen, head of Australia economics at Moody’s Analytics, attributed the softer-than-expected headline figure partly to businesses writing down inventories “more aggressively than expected.”

“But they say more about timing and accounting than underlying final demand,” Nguyen added.

Domestic final demand contributed 1.1 percentage points to growth. Private investment grew at the fastest pace since March 2021, driven by business investment in machinery, equipment and major data centers across New South Wales and Victoria.

Household consumption continued to expand, led by insurance, electricity, gas, rent, healthcare and food.

Meanwhile, net trade was a major drag, denting the economy by 0.1 percentage point, as imports growth outpaced rise in exports in the three months through September.

Before the GDP data was released, Reserve Bank of Australia Governor Michele Bullock cautioned that the economy had likely hit its potential growth limit at a time when inflation has been staying above the bank’s target. The board will act on renewed price pressures, Bullock added.

The country’s inflation accelerated in October, rising 3.8% year on year, marking its fastest pace in seven months, exceeding the RBA’s targeted range of 2% and 3%.

At the monetary policy meeting last month, the central bank kept its interest rate unchanged at 3.6%, saying it was cautious about easing further, given a strengthening economy, tight labor market and persistent inflationary pressure.

“The Q3 data confirms that the economy is still too hot for the RBA’s liking,” said Cruise, adding that rate cuts were “off the table for some time” and a hike next week to nip inflation “can’t be ruled out.”

Australian government 10-year bond yield rose 4 basis points to 4.650 after the release. It has gained 55 basis points since mid-October.

Bullock said last month that the current interest rate cutting cycle could be close to an end, with the central bank forecasting inflation to stay above its target range of 2% to 3% until the second half of next year.

The RBA’s board meets next week and is widely expected to leave interest rates at 3.6%.

In the second quarter this year, Australia’s economy expanded 1.8% year on year, compared with 1.3% in the prior quarter, underpinned by domestic spending including household and government consumption.