The Australian share market suffered its worst trading day in six months on Thursday, as surging oil prices and mounting fears of further interest rate rises spooked investors. The S&P/ASX 200 dropped 163.80 points, or 1.8 per cent, to 8747.60 by late morning, wiping out roughly $58 billion in value. The sell-off reflects growing anxiety that persistent inflation, worsened by rising energy costs, will force the Reserve Bank of Australia to keep tightening monetary policy, adding pressure on mortgage holders and the wider economy.

Markets now price a 79 per cent chance of a rate hike this month, up sharply from 64 per cent earlier in the week, with a further increase fully priced in by mid-2027. The RBA's next decision falls on 29 September, and officials including assistant governor Sarah Hunter have signalled inflation remains the top priority. Oil surged above $US101 a barrel amid attacks on tankers in the Strait of Hormuz, while business profitability hit its lowest level since the pandemic and mortgage-holder confidence fell 14 per cent in August. Separately, HSBC expects house prices could fall 13 per cent from peak to trough, after $34.1 billion was already wiped off property values in the June quarter.