Bullock Sounds Alarm on Inflation Risks Amid Back-to-Back Hike Expectations

RBA Governor Michele Bullock has sounded the alarm on inflation risks, stating that upside pressures are materialising. This comes as financial markets price a strong chance of back-to-back cash-rate hikes before year-end.

Bullock's comments were made during her appearance before Parliament's standing committee on economics last Friday. She highlighted that despite softer economic growth, inflation remains too high. The RBA governor noted that the ongoing conflict in the Middle East has raised concerns about a prolonged energy-price shock and potential pass-through of higher costs to consumers.

The ASX 30-day interbank cash-rate futures October contract is currently trading at 95.45, implying an 82% chance of a 25-basis-point increase in September from 4.35% to 4.60%. Markets are also pricing in further quarter-point rises at the RBA's November and December meetings, which would take the cash rate to 5.10% if fully realised.

Major bank economists have shifted away from extended-hold forecasts following July inflation data, which showed underlying inflation holding at 3.3%. The Commonwealth Bank of Australia (CBA), Australia and New Zealand Banking Group (ANZ) believe the RBA will hike once more in November, while the National Australia Bank (NAB) and Macquarie Bank are predicting a single September rise.

The International Monetary Fund (IMF) has also echoed the RBA's concerns, urging the central bank to remain ready to lift rates if inflationary pressure persists. Treasurer Jim Chalmers acknowledged that higher interest rates are difficult for Australians with mortgages but stressed that bringing inflation under control remains a priority.