Reserve Bank of Australia (RBA) Governor Michele Bullock addressed parliament on Friday, warning that several upside risks to inflation are beginning to materialise. She highlighted the ongoing Middle East conflict, a global artificial‑intelligence (AI) boom and extreme weather events as key drivers of higher prices.
Policy outlook and rate decisions
Bullock said the central bank will consider whether the three rate hikes already implemented this year – raising the cash rate from a post‑pandemic high of 4.35% – will be sufficient to bring inflation back to the 2%‑3% target range. “It may be the same rate is enough to do that,” she noted, “or it may be that it is not,” adding that policymakers are weighing the impact of these upside risks.
The RBA held rates steady for a second consecutive meeting in August, but warned that further tightening could be needed. Markets currently price a 93% chance of a fourth rate increase to 4.6% at the September 28‑29 meeting, with expectations of a peak of 4.85% by early 2027.
Specific inflation pressures
“There is little sign of resolution of the Middle East conflict. Oil and related prices have increased sharply again and will add directly to inflation,” Bullock said.
She also pointed to the global AI boom, which is spurring stronger growth in economies that are part of the AI supply chain and driving higher prices for AI‑related technologies that are supply‑constrained.
Business concerns and labour market
Businesses have expressed renewed worries that the RBA may not get inflation under control, with many passing higher input costs onto consumers. Bullock warned that a still‑tight labour market could amplify this pass‑through.
Housing market impact
While the housing market has softened more than expected, Bullock said the financial‑stability risks from falling house prices remain limited because borrowers have built up substantial savings buffers. “What matters for monetary policy is how changes in housing prices affect economic activity, the labour market and, ultimately, inflation,” she explained.
UBS economists, noting the hawkish tone of the RBA, now expect two more 25‑basis‑point hikes this year, taking the cash rate to a peak of 4.85%. They also project that the surge in oil prices could lift headline inflation to 3.8% year‑on‑year in the third quarter, up from 3.5% in July.
Original reporting: Appleton, WI News Feed (HLL/CB) — read the source article.
