RBA deputy governor Hauser says inflation outlook is 'materially worse'; market pricing for November rate rise passes 50%

Reserve Bank of Australia Deputy Governor Andrew Hauser said on Wednesday 21 October that the inflation outlook “looks materially worse” than the bank projected in its August forecasts.

Speaking at a Citi investment conference in Sydney, according to the RBA’s published transcript, Mr Hauser said oil prices were about a third higher than the bank had assumed in August, that higher technology prices linked to artificial intelligence were feeding into consumer prices, and that inflation had been coming in at or above expectations.

He said the bank’s liaison program and a business survey showed “an increasing share of businesses” thinking that inflation of 3% to 3.5% “is the new normal”. “That is the central banker’s nightmare. We can’t allow expectations to shift away from the target,” he said. The RBA targets inflation of 2% to 3%.

Mr Hauser described the board’s choice as one between doing more to tackle inflation, accepting weaker activity and employment, or holding to protect the labour market while accepting the risk that inflation becomes embedded. He said the board was still finalising its forecasts. Asked about September’s rise in unemployment to 4.7%, he said it “clearly was a little weaker” than expected, and stressed “the little”.

Market pricing for a 25 basis point rise in November rose to about 51%, according to Bloomberg data cited by ABC News and RateProbability data cited by Investing.com, from 22% on Tuesday. UBS chief economist George Tharenou said the bank forecast a November rise. The RBA’s next decision is due on 3 November, ABC News reported.

See also: RBA’s Bullock on tighter policy and unemployment.