The S&P/ASX200 fell 89.6 points on Thursday, down 0.98 per cent, to 9,038.2, as the broader All Ordinaries tumbled by 95.6 points, or 1.02 per cent, to 9,243.2.
After July's hot inflation print, ANZ and CommBank economists have tipped the Reserve Bank will lift the official cash rate by November.
But NAB analysts believe the hike will arrive by the central bank's late September meeting.
Nine of 11 local sectors ended the session lower, as rate-sensitive segments like consumer cyclicals, real estate trusts and IT stocks plummeted, while banks and miners also suffered.
Despite some encouraging signs, underlying inflation was creeping higher and some impacts of the Middle East had yet to filter through the economy, Moomoo market strategist Michael McCarthy said.
"I don't think we've seen the secondary effects of these surges in energy prices in inflation data yet, and they are very real," Mr McCarthy told AAP.
Price pressures were coming from all directions, from outsized wage increases to unchecked government spending and infrastructure projects, he said.
"The idea that inflation is moderating is a triumph of hope over experience."
BHP lumbered over the exchange with a 1.5 per cent stumble to $66.40, falling for a second session from record highs as copper prices softened overnight.
Gold producers were also heavy as the yellow metal eased to $US4,610 ($A6,416) an ounce, after shedding a small nugget of its more than 15 per cent August rally.
Financials fell to their lowest close since mid-June, as the gloomy outlook for interest rates weighed on an already compromised environment for home loan demand.
Discretionary retail companies took the biggest hit, the segment bleeding 3.2 per cent in a broad sector sell-off.
Bunnings owner Wesfarmers was a major culprit, after it posted a 1.8 per cent profit reduction to $2.87 billion in the 2025/26 financial year.
Health care was the only sector to end the session significantly higher, with a 0.2 per cent lift despite Chemist Warehouse owner Sigma falling 7.8 per cent after local sales missed consensus estimates.
Aged care provider Ramsay Health Care wheeled more than 13 per cent higher after its annual earnings surged by more than half to $1.1 billion.
CSL continued its post-earnings push to $173.88, its shares holding ground at their highest level since February.
The Australian dollar is buying 71.84 US cents, up from 71.79 US cents on Wednesday at 5pm, as hawkish tailwinds lifted the Aussie to two-month highs.
ON THE ASX:
* The S&P/ASX200 fell 89.6 points, or 0.98 per cent, to 9,038.2
* The broader All Ordinaries lost 95.6 points, or 1.02 per cent, to 9,243.2
One Australian dollar trades for:
* 71.84 US cents, from 71.79 US cents at 5pm AEST on Tuesday
* 114.48 Japanese yen, from 114.18 Japanese yen
* 61.65 euro cents, from 61.53 euro cents
* 52.86 British pence, from 52.65 pence
* 120.78 NZ cents, from 120.72 NZ cents
8°C