Australia inflation outlook ‘materially worse’, RBA deputy Hauser says

Australia’s inflation outlook has deteriorated and upcoming third quarter data will likely confirm this view, Reserve Bank of Australia Deputy Governor Andrew Hauser warned on Wednesday.

Speaking at a Citi conference in Sydney, Hauser said the RBA’s business liaison showed an increasing number of companies were passing on higher costs, which risked entrenching higher inflation expectations.

"The inflation outlook looks materially worse than we expected in the August…inflation has been coming in a little above expectations despite an easing in the labor market," Hauser said.

Hauser warned that businesses were beginning to view 3.5% inflation as the "new normal" and that high prices were becoming increasingly entrenched. This trend could require higher rates, he said.

The RBA has raised rates four times this year by a total of 1% to address persistent inflation, which has been steadily rising over the past year.

Surging oil prices due to the U.S.-Iran war, plus increasing electronics costs associated with artificial intelligence, added to the inflationary upside this year. 

Australian consumer price index inflation rose 4% in August, remaining well above the RBA’s 2% to 3% annual target. CPI data for September is due next week. 

Markets had reduced bets on a fifth rate hike this year, but Hauser’s comments prompted some reversal in this view, with markets seen pricing in a 40% chance the RBA will raise rates again when it meets in early-November.