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Australia’s Hauser warns inflation outlook has worsened materially

Reserve Bank of Australia Deputy Governor Andrew Hauser said the inflation outlook had deteriorated materially since August. He pointed to higher oil prices and persistent capacity pressures while describing weaker demand as evidence that monetary policy was working. His concern about inflation expectations accompanied the assessment; the speech announced no new interest rate decision.

Economics & Markets··Midday
Rear view of a suited speaker at a lectern beside an Australian flag, addressing a seated audience in a bright hall.

Hauser describes a worse inflation outlook

Australia’s inflation outlook has deteriorated materially since the August forecast, Reserve Bank of Australia Deputy Governor Andrew Hauser said on October 21. He highlighted the risk that businesses begin to treat inflation of 3 per cent to 3.5 per cent as normal, with expectations drifting away from the central bank’s target.[1], [2]

Oil prices were about one-third above the August assumption. Hauser also identified artificial intelligence investment, demand for technology products and continuing service-sector capacity constraints as sources of price pressure. He said monetary policy could not reverse an oil shock but could limit its subsequent effects on wages, prices and expectations.[1]

Demand is slowing under tighter policy

Slower employment, subdued consumption, a housing correction and low confidence were signs that monetary policy was working, Hauser said. Investment connected to Asia and artificial intelligence remained resilient. The bank had raised interest rates in February, March and May, paused in June and August, and increased them again unanimously in September.[1]

The speech leaves the next rate decision open

Hauser’s speech announced no November interest rate decision or definite rate path. He also discussed the distribution of policy’s effects: about 2 per cent of mortgage borrowers had negative cash flow, compared with about 15 per cent of renters. The median mortgage borrower held a payment buffer of more than one year.[1]

References

  1. News sourceReserve Bank of AustraliaRBA warns of worsening inflation outlook↩1↩2↩3↩4
  2. News sourceABC NewsAustralia’s Hauser warns of a materially worse inflation outlook↩
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