Reserve Bank of Australia (RBA) Deputy Governor Andrew Hauser warned on October 21 that the inflation outlook had worsened, casting doubt on whether the central bank would raise interest rates further in November. Speaking at a Citi investment conference, Hauser noted that while tighter monetary policy was slowing the economy, higher oil prices had complicated the inflation picture.
Brent crude oil last traded at US$108 a barrel, up from US$102 when the RBA last met three weeks ago. This surge, driven in part by the Gulf war, has pushed inflation expectations higher. Hauser acknowledged the challenge of balancing inflation control with protecting the labor market, describing the situation as one of 'hard choices.'
The RBA is set to meet on November 2 and 3 to decide on a potential fifth rate hike in 2026, bringing the cash rate to 4.60%. Markets now price in a 40% chance of a November increase, up from 30% earlier in the week, with another hike fully expected by May 2027. Consumer price data due next week could show headline inflation climbing to 4.0% in the third quarter, with core inflation holding around 3.5%, well above the RBA’s 2% to 3% target range.
Hauser emphasized that the inflation outcome would likely exceed previous forecasts, raising questions about the economy’s capacity. Recent labor data showed unemployment hitting a five-year high of 4.7% in September, while house prices have fallen faster than anticipated. Despite these signs of easing, the unemployment rate remains among the lowest in G-20 countries.