Reserve Bank of Australia (RBA) Governor Michele Bullock said at a Senate committee hearing on Wednesday that some international and domestic upside inflation risks have already materialized or are emerging, meaning inflation could be higher than the central bank's August baseline scenario.
Her remarks came less than a week before the RBA's rate meeting, heightening market attention on the possibility of another rate hike.
Data released the same day showed Australia's CPI accelerated to 3.7% year-on-year last quarter, faster than the previous three months and above the 3.6% median estimate, further reinforcing signals that inflation pressures remain uncontrolled.
In her opening statement, Bullock said: "Some international and domestic upside inflation risks have already materialized or are emerging."
"As a result, inflation may be higher than our August baseline scenario."
After she delivered the statement, data showed inflation accelerated to 3.7% year-on-year last quarter, not only faster than the previous three months but also above the market median estimate of 3.6%.
This suggests the RBA may have underestimated price pressures in its August forecasts, raising the likelihood that next week's meeting will discuss another rate hike.
The RBA raised borrowing costs to a 15-year high of 4.6% last month, its fourth hike this year.
Inflation remains above the upper end of the RBA's target range, indicating the central bank continues to face persistent challenges on the price pressure front.
The original text noted that these pressures existed even before the US-Israel strikes on Iran triggered a global energy shock, meaning the energy shock could further compound existing inflation pressures.
Senior RBA officials including Deputy Governor Andrew Hauser and Assistant Governor Sarah Hunter also attended the hearing.
Over the past 10 days, both have sent hawkish signals to the market, with Hauser saying the inflation outlook has "deteriorated markedly" compared with the RBA's August forecasts.
Bullock stressed in her opening statement: "It is important for the economy that inflation does not deviate from target for too long," otherwise the risk is that inflation becomes embedded in inflation expectations and further feeds into price- and wage-setting decisions.
Overall, Australia's upside inflation risks are shifting from warning to data reality, and the RBA faces stronger pressure for further rate hikes at next week's meeting.
In the near term, three points warrant attention: first, whether the RBA hikes again next week and the wording of its statement; second, the pass-through of subsequent CPI and energy prices to core inflation; third, whether inflation expectations, wage and pricing behavior show signs of de-anchoring.
If inflation continues to exceed the upper end of the target range, the probability that the RBA maintains or even intensifies its tightening stance will rise.
If subsequent inflation data eases, the impact of the energy shock diminishes, or the labor market cools markedly, the pressure on the RBA to hike may ease; conversely, if inflation expectations become de-anchored or the risk of a wage-price spiral rises, policy tightening could exceed expectations.
Comments