RBA Sees Inflation Risks Materializing Ahead of Rate Hike Decision

Reserve Bank of Australia Governor Michele Bullock has expressed concerns that inflation risks may be materializing. Speaking at a business lunch, she noted that energy prices have remained high and there is still excess demand in the economy.

Bullock highlighted the impact of the Middle East conflict on global energy prices and its potential to fuel inflationary pressures. She also mentioned domestic demand as another factor contributing to upside risks for inflation.

The RBA has been concerned about inflation being too high for too long, with core inflation currently running at 3.6%, well above the target range of 2% to 3%. The central bank has increased the cash rate by 75 basis points since February, taking it back to a post-pandemic high of 4.35%.

RBA Assistant Governor Sarah Hunter also reiterated that interest rates might have to rise for a fourth time this year to rein in inflation. Markets have priced in a 95% chance of a rate hike next week, with some predicting rates could peak at 4.85% early next year.