Reserve Bank of Australia Warns Inflation Outlook Worsens as November Rate Hike Odds Climb

POLICY WIRE — Sydney, Australia — The inflation trajectory in Australia has taken a negative turn, with upcoming third-quarter figures likely to confirm the deteriorating trend, Reserve Bank of Australia Deputy Governor Andrew Hauser cautioned on Wednesday.

During an address at a Citi conference in Sydney, Hauser pointed out that recent business liaison feedback reveals a growing volume of enterprises successfully transferring higher costs onto consumers, creating a dangerous threat of entrenched inflation expectations.

The inflation outlook appears significantly worse than projected back in August, Hauser noted, highlighting that consumer price growth continues to print above forecasts despite a simultaneous softening observed in the domestic labor market.

Hauser cautioned that commercial entities are beginning to accept an annual inflation rate of 3.5% as the new normal, signaling that elevated pricing pressures are becoming deeply embedded and might ultimately necessitate further monetary tightening.

Throughout the year, the central bank has already implemented four interest rate increases totaling 1% to combat stubborn price growth that has steadily escalated over the past twelve months.

Additional upward pressure on prices has stemmed from surging petroleum costs driven by the ongoing U.S.-Iran conflict, alongside rising electronics expenses tied to advancements in artificial intelligence.

Official figures show the Australian consumer price index increased by 4% in August, remaining well outside the RBA’s targeted annual window of 2% to 3%, with fresh CPI figures for September scheduled for release next week.

Financial markets had previously pared back expectations regarding a fifth monetary tightening this year, but Hauser’s remarks triggered an immediate shift, with traders currently pricing in a robust probability that the RBA will lift rates during its upcoming meeting.

Reporting by Policy-Wire (PW)