RBA Warns of Further Rate Hikes Amid High Inflation and US-Iran Tensions

The Reserve Bank of Australia (RBA) has issued a warning about the country's high inflation rate, which could lead to further interest rate hikes. RBA governor Michele Bullock stated that underlying inflation remains too high and has evolved broadly as expected since May.

Despite three interest rate rises since February, the labor market has eased somewhat and demand growth has been moderating. However, further easing in demand is needed to bring inflation sustainably back to target. Bullock emphasized that the RBA board is prepared to act as required to achieve its mandate, including increasing the cash rate if necessary.

The warning comes as oil markets continue to be volatile due to tensions between the US and Iran. Brent crude fell below $90 a barrel on Tuesday, but Treasury warned of potential short-term price increases. Bullock also noted that Australians are still experiencing diminished living standards due to successive negative supply shocks since the pandemic.

The RBA will consider next month's inflation data release when deciding on future interest rate hikes. Headline inflation eased to 4% annually in March, but the trimmed mean remains too high at 3.6%. HSBC chief economist Paul Bloxham stated that the key questions are whether the growth downturn is enough to bring inflation back to target and how soon it will happen.