Australia’s headline inflation rate has accelerated to 4.3%, placing immense pressure on the Reserve Bank of Australia (RBA) to deliver another interest rate hike when it meets next week.
Data released by the Australian Bureau of Statistics on Wednesday confirms that price growth remains stubborn, with the RBA’s preferred measure of underlying inflation—which strips out volatile items—sitting at 3.6%. The figures have sharpened market expectations that the central bank will lift borrowing costs for the fifth time this year.
The current cash rate already sits at 4.6%, its highest level in 15 years. However, RBA officials have warned that the inflation outlook is “materially worse” than previously anticipated, prompting concerns that further monetary tightening is required to steer the economy back toward the bank’s 2.5% target.
RBA Deputy Governor Andrew Hauser told a Senate estimates hearing on Wednesday that the current inflation levels are “too high.” He highlighted a “nightmare” risk that longer-term inflation expectations could become unanchored, making the task of cooling the economy significantly more difficult.
“We don’t think it is necessarily crystallising yet, but it is a particular risk,” Hauser said.
The economic strain is becoming increasingly visible as households grapple with simultaneous rising costs and a softening labour market, with unemployment recently hitting a five-year high of 4.7%. According to the latest data, transport costs have surged 8.7% over the past year, largely driven by fuel price spikes stemming from the ongoing conflict involving Iran. Meanwhile, housing costs have risen by 5.2%, and food prices have climbed 3.2%.
The economic data has ignited a fierce political debate regarding the drivers of Australia’s cost-of-living crisis. While critics have targeted government spending and low productivity, Treasurer Jim Chalmers sought to deflect responsibility, pointing to international factors.
“The most important thing that can happen for Australians under pressure is to see an end to this war in the Middle East,” Chalmers said. “This war has been disastrous for Australians, for cost of living and for inflation, right around the world.”
Economists are warning that the path forward for the RBA is fraught with difficulty. Stephen Smith, a partner at Deloitte Access Economics, noted that the central bank appears to have little appetite to allow inflation expectations to drift higher, even as domestic demand weakens.
“The difficulty is that the economy is already slowing. Household spending is subdued, the labour market has softened and the housing market has weakened,” Smith said.
Market analysts echoed the sentiment that relief for mortgage holders is unlikely in the near term. Josh Gilbert, a market analyst at eToro, described the current situation as a “higher-for-longer” scenario. “Anyone holding out for rate relief may need to pack plenty of patience, because another hike looks imminent,” he said.
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