RBA Governor Flags Rising Inflation Risks Ahead of Policy Decision
Michele Bullock warns energy costs and demand are pushing prices up, with markets expecting a rate hike to 4.60%.
Key points
- The RBA Governor warns that energy prices and domestic demand are creating rising inflation risks.
- Markets assign a 95% chance of a rate hike to 4.60% at the next policy meeting.
- Core inflation stands at 3.6%, well above the central bank's 2% to 3% target range.
Reserve Bank of Australia Governor Michele Bullock warned that inflation risks are materialising. High energy prices and persistent excess domestic demand are driving the pressure.
The central bank held its cash rate steady at 4.35% for a second consecutive meeting. Core inflation remains at 3.6%, significantly above the 2% to 3% target range.
Unemployment Targeting Inflation Control
Bullock stated that an unemployment rate between 4.5% and 5.0% helps restrain inflation. The current level sits at 4.5%, suggesting some increase may be necessary.
Market Expectations For Policy Hike
Traders price a 95% probability of a rate increase to 4.60% next week. They expect rates to peak at 4.85% by early next year.
Assistant Governor Sarah Hunter noted that a fourth rate rise this year might be required. The board has already raised rates by 75 basis points since February.
External Factors Impacting Price Stability
The prolonged Middle East conflict has kept energy prices elevated for longer than anticipated. This external shock adds to the internal pressure from strong consumer demand.
Bullock emphasized that the board is questioning if these risks have already materialised. The central bank aims to prevent high inflation from becoming embedded in price-setting behaviour.
