RBA deputy Andrew Hauser warns inflation outlook has worsened before November rate decision
Hauser said Australians’ doubts about a return to the inflation target could force hard choices for the central bank as it weighs another interest rate rise.
Reserve Bank of Australia deputy governor Andrew Hauser warned at the Citi Investment Conference in Sydney on 21 October that the inflation outlook looked materially worse than the bank expected two months earlier. His warning puts inflation expectations at the centre of the board’s next interest rate decision on 3 November, when it will also publish updated forecasts.
Hauser said some Australians were unsure whether the RBA would bring inflation back to its target, or believed it would take an extended period. According to ABC News, the bank’s liaison work and surveys suggested a growing share of businesses were treating inflation of about 3% to 3.5% as a possible new normal. He called a shift in expectations away from the target a ‘central banker’s nightmare’. The RBA aims for headline inflation of 2% to 3% on average over time; the August consumer price index put inflation at 4%.
Why Hauser sees hard choices for the RBA
Higher interest rates could be needed to prevent expectations of persistent inflation from taking hold, Hauser warned, but further tightening would add to pressure on households and weaken economic activity. Asked about that pressure, he said shorter term pain was intended to prevent ‘a longer and potentially far worse pain down the track if inflation expectations get locked in,’ ABC News reported.
The economic picture was mixed, Hauser said. High interest rates and petrol prices were weighing on activity, according to the Guardian, while growth among major Asian trading partners and investment in data centres provided strength. He said the September rise in unemployment to 4.7%, a five year high, was a little weaker than expected, but suggested there could be noise in the jobs figures.
November meeting and forecasts
The monetary policy board begins its two day meeting on 2 November. Its rate decision and quarterly Statement on Monetary Policy are due on 3 November. Hauser said the bank was debating the jobs data as it prepared its forecasts, according to ABC News. The board has yet to decide whether the inflation risk warrants another increase in borrowing costs.
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Sources and context
- RBA deputy warns inflation outlook 'materially worse' as next decision loomsABC News (Australia)
- Odds of fifth interest rate hike this year likely to shorten as RBA deputy warns inflation outlook ‘worsening’The Guardian (Patrick Commins)
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