RBA deputy warns worsening inflation outlook: odds of fifth interest rate hike this year likely shorten
Inflation risks are rising
Hauser said inflation had remained high for an extended period, leaving some people unsure whether it would return to the target soon. He also warned that businesses were beginning to treat 3.5% inflation as normal.
He said changing that entrenched mindset could require higher interest rates. In his view, bringing inflation down would require a period of below-trend economic growth, which he said was already occurring.
Economic pressures complicate decisions
The deputy governor pointed to stronger-than-expected growth among Australia’s major trading partners in Asia and a boom in datacentre investment. Oil prices were about one-third above the level the RBA had forecast in August.
Those pressures have made the inflation outlook worse than the central bank anticipated two months earlier. Hauser described the choices facing policymakers as difficult.
Labour market remains a concern
Hauser raised the possibility of keeping interest rates unchanged to shield the labour market, while acknowledging the risk that inflation expectations could become more firmly embedded. He said that outcome could make inflation harder to address.
Hauser is a member of the RBA’s monetary policy board, which is due to begin its next two-day meeting on 2 November. His comments renewed speculation about another rate rise this year.
Key points
- Hauser said the inflation outlook had worsened since the RBA’s assessment two months earlier.
- He warned that businesses were starting to regard 3.5% inflation as normal.
- Stronger Asian growth, datacentre investment and higher oil prices are adding to inflation concerns.
- The RBA board’s next two-day meeting begins on 2 November.