Hauser flags entrenched price expectations
Speaking at the Citi Investment Conference in Sydney less than two weeks before the Reserve Bank's next decision, deputy governor Andrew Hauser said the inflation picture had deteriorated beyond what the central bank had projected. He pointed to early signals that parts of the community doubt whether inflation will return to target at all, or at least not for a long stretch. The RBA aims for headline inflation of 2 to 3 per cent on average over time, while the August consumer price index put it at 4 per cent.[S1][S2][S3][S4][S5][S6][S7][S8]
Hauser said the bank's liaison work and survey data revealed a growing proportion of firms treating roughly 3 to 3.5 per cent inflation as the new norm. He described that drift as a central banker's nightmare and said expectations cannot be permitted to move away from the target.[S1]
Rate hike odds climb before November decision
Market pricing based on LSEG data now implies a 42 per cent probability of a rate increase in November. Those odds had fallen below 20 per cent the previous week, after the unemployment rate climbed to a five-year high in September. The rate-setting board meets at the start of November and will announce its decision on Melbourne Cup day, the same day the bank publishes its quarterly forecasts in the Statement on Monetary Policy.[S1][S3][S4][S5][S6]
Deputy defends pain now against worse pain later
Hauser acknowledged the difficulty of explaining rate rises to households already squeezed by cost-of-living pressure, saying the message is a continuous challenge. He argued that stacking short-term pain on top of existing pain is intended to avert a longer and potentially far more severe squeeze if inflation expectations become locked in, echoing language used by governor Michele Bullock as rates have risen. He also cited competing price pressures from the Middle East crisis, the artificial intelligence and technology boom, and weak productivity growth.[S1]
Labour market seen softening only slightly
On employment, Hauser played down alarm about the jobless rate reaching 4.7 per cent in September, suggesting the figures may contain noise while conceding the result was a little weaker than the bank and others had anticipated. He stressed the word little, noting Australian unemployment remains at or close to the bottom of G20 labour market outcomes. He said no lost job is worth celebrating but that the economy needs some easing, and that whether unemployment reaches 5 per cent or another level is under debate in the bank's current forecasting.[S1]
