Australia inflation outlook ‘materially worse’, RBA deputy Hauser says

Australia's inflation outlook is set to worsen, with the Reserve Bank of Australia's Deputy Governor Andrew Hauser warning of this during a recent conference in Sydney. Hauser stated that upcoming third-quarter data is expected to confirm this view. He noted that businesses are increasingly passing on higher costs, potentially leading to higher inflation expectations.

Despite a slight easing in the labor market, inflation has been consistently above expectations. Hauser warned that businesses may now consider 3.5% inflation as the new normal, and that entrenched high prices could necessitate further rate hikes. The RBA has already raised interest rates four times this year by a total of 1% to combat persistent inflation, which has been steadily increasing over the past year.

Factors contributing to the inflationary pressure include surging oil prices due to the U.S.-Iran conflict and rising electronics costs associated with artificial intelligence. Consumer price index (CPI) inflation in Australia reached 4% in August, significantly higher than the RBA's target range of 2% to 3%. While markets had reduced expectations for a fifth rate hike this year, Hauser's comments have subsequently altered this view, with some markets now pricing in a 40% chance of another rate hike when the RBA meets in early November.