Bullock Flags Second-Round Risk as RBA Faces Supply Shock Headwinds

RBA Governor Michele Bullock has emphasized that supply shocks can be challenging for monetary policy to manage, particularly when it comes to their second-round effects on inflation. In a fireside chat appearance, Bullock pointed out that initial cost shocks, such as higher oil prices, can lead to broader wage and price setting decisions across the economy.

This hawkish tone is consistent with Bullock's previous public appearances, including her testimony before a parliamentary committee last Friday. There, she highlighted the materializing upside inflation risks and the general view among policymakers that the neutral interest rate has risen.

The remarks come ahead of the RBA's September 28-29 meeting, where a 25 basis point increase from the current 4.35% cash rate is widely expected. With nothing in Bullock's comments suggesting a departure from this expected path, markets are unlikely to revise their views on further tightening.