Reserve Bank of Australia Governor Bullock warns of inflation risks as rate decision looms

Reserve Bank of Australia Governor Michele Bullock cautioned on Tuesday that inflation risks persist due to high energy prices and robust domestic demand. Speaking at a business lunch, Bullock cited the protracted Middle East conflict and its impact on energy costs as significant contributors to inflationary pressures. She highlighted that the conflict has endured longer than anticipated and that excess demand continues to plague the economy.

Bullock suggested that unemployment rates between 4.5% and 5.0% could assist in alleviating inflation, attributing rising prices to domestic demand outpacing supply. While the governor did not signal an immediate interest rate increase during the RBA's upcoming meeting, she emphasized the potential upside risks to inflation. Bullock has consistently raised concerns about inflation staying persistently high for an extended period and becoming entrenched in price-setting behaviors.

Consequently, the RBA has already raised interest rates by a total of 75 basis points in 2026, bringing the rate to 4.35%. Market participants are betting on an additional 25 basis points hike during the next week. RBA Assistant Governor Sarah Hunter stated earlier that rates might need to be raised for a fourth time this year to effectively control inflation.