RBA governor says Australia’s inflation risks appear to be materialising

Australia’s central bank is assessing whether the tightening delivered so far will be sufficient to bring inflation back to target after some upside inflation risks appeared to be materialising. Governor Michele Bullock delivered the warning in parliamentary testimony on 18 September. The cash rate stands at 4.35% after 75 basis points of increases this year. The Monetary Policy Board is due to meet again in just over a week.

Headline and underlying inflation have been around or slightly above 3.5% over the past year, above the RBA’s 2% to 3% target. August forecasts did not return inflation to around the target midpoint until late 2027. Unemployment was 4.5%, which Bullock described as low by historical standards. She said inflation remained too high and needed to be prevented from becoming embedded in price and wage setting.

GLOBAL COST PRESSURES INTENSIFY

The Middle East conflict has lifted oil prices and added directly to petrol costs, the RBA said. Firms are also passing higher fuel-related input costs into other goods and services. Bullock warned that a broader pass-through could make inflation more persistent and require a stronger policy response.

Bullock said the Middle East conflict, the AI boom and extreme weather were adding to upward pressure on energy, agricultural and technology-related prices, and that the AI boom was raising global prices for some supply-constrained technologies. Domestic capacity constraints and a labour market near full employment may amplify those effects. Housing has softened, but the RBA said financial-stability risks remained contained because borrowers had built substantial savings buffers.

NEXT MEETING TURNS ON PERSISTENCE

Money markets had already been pricing a likely rise at the 28–29 September meeting.

Policymakers will examine whether the tightening already delivered can return inflation to target within a reasonable period. Bullock said the board would discuss the flow of data and how the risks were unfolding. Bullock said monetary policy was well placed to respond to developments.