Australian central banker says inflation outlook worse, unsure about November rate hike
The central bank meets on Nov 2 and 3 to decide whether to raise its 4.60% cash rate for a fifth time in 2026.
On October 21, the Deputy Governor of the Reserve Bank of Australia (RBA), Andrew Hauser, stated that tighter monetary policy was helping to slow the economy, but the inflation outlook had worsened, leaving him uncertain about whether rates would need to rise further in November. At a Citi investment conference, Hauser mentioned that the bank's economists were still refining their quarterly forecasts, but the inflation outlook had become "materially worse," due in part to surging oil prices.
Brent crude oil reached US$108 a barrel, up from US$102 a barrel when the central bank last met three weeks prior, and had increased by a third from August's forecast. Hauser noted that while the monetary policy was working, labor market easing and tepid consumption growth were present, creating a complex balancing act. He emphasized the challenge faced by the board: whether to address high inflation or protect the labor market.
The RBA is set to meet on November 2 and 3 to decide on a potential fifth rate hike in 2026. Currently, markets suggest a 40% chance of a rate increase to 4.85% in November, up from 30% at the start of the week, with further hikes priced in by May 2027. Consumer price data expected next week might reveal headline inflation reaching 4.0% in Q3, driven by war-related fuel costs.
Core inflation is projected to stay around 3.5%, significantly above the RBA's target band of 2% to 3%. Hauser confirmed that the actual inflation outcome would likely exceed the initial forecasts. He indicated that the numbers would be scrutinized carefully after the final release, leading to reevaluation of the economy's capacity.
Minutes from the RBA's last meeting highlighted continued concerns over upside inflation risks, even after the fourth rate hike. Recent labor data revealed an unexpected peak unemployment rate of 4.7% in September, while housing prices fell faster than anticipated. Despite this, Hauser pointed out that the unemployment rate remained among the lowest in the G-20 countries.
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