The S&P/ASX200 fell 54.2 points by midday, down 0.59 per cent, to 9,073.6, as the broader All Ordinaries lost 59.3 points, or 0.63 per cent, to 9,279.5.
The move came after Wednesday's hotter-than-expected July inflation print prompted ANZ economists to tip a Reserve Bank interest rate hike in November, while NAB's were even more pessimistic.
"July CPI data showed inflation running hotter than the RBA expected in early August, and the RBA has repeatedly signalled in recent weeks that the Monetary Policy Board would act if upside risks to inflation were realised," NAB chief economist Sally Auld said.
"The risk is biased towards an additional hike in November, especially if activity data shows resilience in coming months."
Raw materials stocks weighed heavily, as BHP and Rio Tinto retreated after an overnight dip in copper prices.
Gold stocks were also in the red, as the precious metal continued to face resistance after a recent rally to trade near $US4,361 ($A6,449) an ounce.
Interest rate-sensitive sectors also dragged, with real estate trusts and IT stocks down 1.6 per cent and 2.1 per cent respectively, while consumer cyclicals lost 0.7 per cent.
The drop in discretionary-spending stocks came as Wesfarmers recorded a 1.8 per cent fall in full-year profit to $2.87 billion, although there has been encouraging sales growth at Bunnings and Kmart so far in 2026/27.
The consumer staples sector tumbled 1.5 per cent, after strong results from Coles and Woolworths launched it four per cent higher during the previous two sessions.
The heavyweight financials sector was relatively stable, down 0.2 per cent, as CommBank and Westpac eked minor gains.
However, zooming out, the vertical has tumbled almost 10 per cent in August amid persistent housing and mortgage market concerns.
Elsewhere in earnings, Qantas defied a nearly 20 per cent net profit nosedive due to Middle East conflict disruptions to boost its share price 4.5 per cent to $9.64, thanks to strong passenger revenues and a resilient outlook.
Shares in Chemist Warehouse owner Sigma Healthcare tumbled 6.5 per cent after Australian sales growth missed forecasts. Still, GLP-1 weight-loss drug sales and network expansion drove a 22 per cent surge in bottom-line profit to $732.3 million.
The Australian dollar is buying 71.84 US cents, down from 71.79 US cents on Wednesday at 5pm.
The Aussie is still on par with June-highs after higher interest rate expectations put upward pressure on local bond yields.
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