RBA Warns Inflation Risks Materializing Amid Middle East Conflict and AI Boom

Australia's central bank chief Michele Bullock warned lawmakers that some of the upside risks to inflation are materializing. The Reserve Bank of Australia (RBA) has raised interest rates three times this year, with the cash rate matching a post-pandemic high of 4.35%. Bullock said that a key question facing policymakers is whether these rate hikes will be enough to bring inflation back to its target range of 2-3%.

The RBA has singled out several factors as contributing to upside risks, including the Middle East conflict and global AI boom. Bullock noted that oil prices have increased sharply again, adding directly to inflation. She also mentioned the AI boom driving higher global prices for some technologies.

The markets imply a 93% chance of another rate hike this month to 4.6%, with some economists predicting rates could reach 4.85% by early 2027. Bullock acknowledged that the housing market has softened more than expected, but said financial stability risks from the drop in house prices are contained.