Bullock Sounds Alarm: Inflation 'Too High' Ahead of Rate Decision

Reserve Bank governor Michele Bullock issued a warning that inflation in Australia is too high just days before the bank's board considers lifting interest rates for the fourth time this year. Speaking to a House of Representatives Economics committee, Bullock stated that inflation is currently at undesirable levels and needs to be brought back down.

The main contributors to inflation are the ongoing conflict in the Middle East, which has pushed up fuel prices, and the boom in AI-related infrastructure, which is driving up demand for labor and some technology costs. Bullock emphasized the need to contain these effects and prevent them from becoming embedded into price-setting decisions.

Following Bullock's comments, Westpac revised its interest rate forecast, now expecting the Reserve Bank to increase rates this month with a risk of another hike soon after. The RBA has already raised the benchmark cash rate by 0.75 percentage points in three separate increases this year, aiming to reduce inflation.

The bank's next meeting is scheduled for September 28 and 29, where they will consider whether current interest rates are sufficient to bring inflation back to target within a reasonable timeframe. Bullock highlighted the importance of managing inflation effectively, citing its impact on the economy and the need for a period of subdued growth to reduce capacity pressures.

The disruption to international oil supplies caused by the Middle East conflict has pushed Australian petrol prices above $2 per liter this month. Bullock stated that this 'Middle East shock' has made Australians poorer and emphasized the need to keep inflation under control rather than letting it get out of hand.