Texas · GA Daily Post
Hopes of a November rate hold have been thrown into doubt after the RBA warned it is “facing hard choices” and losing its grip on public trust. Speaking in Sydney on Wednesday, deputy governor Andrew Hauser said the bank’s most recent August forecasts are significantly undershooting the fast-moving and challenged economic environment. “We didn’t raise rates in June or August because we wanted to take space to review the impact of our decisions in the first part of the year,” he said.
“But perhaps it sounds naïve now, the possibility of a resolution in the Middle East crisis.” Interest rates were increased for a fourth time in September to a 15-year high of 4.6% in a further attempt to preserve the bank’s timeline for inflation returning to target. While markets are largely expecting the bank will hold off on more tightening in November, Mr Hauser warned risks are escalating quickly. “A few things are clear,” he warned.
“The inflation outlook looks materially worse than we projected in August, and we have the same three upside risks. Reserve Bank of Australia deputy governor Andrew Hauser says inflation risks have escalated since August. Picture: NewsWire / Martin Ollman “Oil prices are even higher – now about a third higher than we assumed in the August projection.
We’re also seeing higher AI prices feeding through into the Consumer Price Index and we continue to have this extraordinary sequence of demand shocks around the world and we’re having a boom in data centre construction in Australia.” Mr Hauser said the bank faces “a world of hard choices”, with forecasts still being finalised with just a week and a half until the next interest rate decision. He added the bank is also concerned inflation has been coming in slightly above expectations, despite an apparent easing in the labour market. Source: ABS Month Trimmed mean (%) August 3.6 July 3.6 June 3.6 May 3.6 April 3.4 Australian Bureau of Statistics data shows underlying inflation remained at 3.6% in the 12 months to August, marking the fourth month in a row without any let up.
The measure of underlying inflation, the trimmed mean, leaves out the most volatile prices changes when it is calculated each month. The cost of fuel is among prices not factored into the calculation, which instead looks to provide a more comprehensive picture of pricing across all areas of living. Households have faced a challenging 12 months since inflation began rising in Australia, with variable mortgage holders having seen four increases to repayments, while high fuel and food costs have also put pressure on budgets.
Mr Hauser said the public’s patience was waning – a significant concern for the bank which has always said confidence in its forecasting and abilities is key to its success. The RBA says public confidence in its ability to maintain low and stable inflation is vital. Picture: Hu Jingchen/Xinhua “We are starting to see some signs in the community that some people are not sure if we’re going to bring inflation back into target at all,” he said.
“That is the central banker’s nightmare – we cannot allow inflation expectations to shift away from target.” With two more monetary policy board meetings left for the year, Mr Hauser said the bank is continuing to “face hard choices” over how to meet both aspects of its mandate. The RBA is expected to both maintain low and stable inflation while keeping the highest level of employment possible. “Do we do more to tackle higher inflation, recognising that means weaker activity and weaker labour market, or do we hold our horses to protect the labour market and be mindful of the potential that there may be more downside momentum of the economy but accept the risk in so doing that there’s upside inflation risk which embeds which becomes more expensive to deal with?” Mr Hauser questioned.
“It’s not where we’d like to be ideally as a central bank and that’s what we are facing into as we plan to meet the week after next.” The RBA’s MPB members will meet from 2-3 November, with a decision on the interest rate to be announced at the end of its discussions.
Source: Real Estate
