RBA Warns Inflation Risks Materializing Amid Energy Price Pressures

Australia's central bank has signaled that inflation risks are materializing, according to Governor Michele Bullock. The RBA policy board is set to meet on September 29 and markets have priced in a 95% chance of a rate hike to 4.60%, with rates potentially peaking at 4.85% early next year.

Bullock highlighted the upside risks to inflation, including energy prices staying high due to the conflict in the Middle East and excess demand in the economy. She noted that unemployment between 4.5% and 5.0% could help restrain inflation, suggesting some rise might be needed from the current level of 4.5%. However, she emphasized that this was not a signal on what might happen to rates at the upcoming meeting.

The RBA has increased interest rates by 75 basis points since February, taking it back to a post-pandemic high of 4.35%. Despite this, core inflation remains above the target range of 2% to 3%, running at 3.6%.