Odds of an Australian Rate Hike Near 50% After Hauser Warns on Inflation
Key Facts
The chance that the Reserve Bank of Australia will raise interest rates in November has approached 50%, up from 30% at the start of the week, after Deputy Governor Andrew Hauser warned that the inflation outlook had deteriorated, according to coverage published on October 21. The pricing reflects a shift in market expectations ahead of the monetary policy meeting, but does not mean a rate hike has been decided. The shift coincided with Goldman Sachs analysts changing their forecast from no change in rates to an increase of the same amount in November. Hauser said that "the inflation outlook has deteriorated" as the bank faces renewed inflation and a labour market showing signs of easing.
Hauser identified three upside risks to inflation: the continuation of the Middle East crisis and higher oil prices, the pass-through of artificial intelligence and technology goods prices to consumer prices, and ongoing domestic capacity pressures. He said oil prices were "around a third higher than we assumed" in the bank's August forecasts. Reuters reported that Brent crude reached $108 a barrel on October 21, compared with $102 at the bank's previous meeting three weeks earlier. The agency also put the increase in the context of the August estimates, saying the price was around a third higher than the bank's assumption at the time. Hauser added that artificial intelligence and technology prices had started to feed into the consumer price index, broadening price pressures beyond energy. In September, the bank had cited higher global energy prices, domestic capacity pressures and persistently elevated short-term inflation expectations.
Previous price data show annual headline inflation accelerated to 4.0% in August, from 3.5% in July, according to the Australian Bureau of Statistics. Trimmed mean inflation, which the bank uses to measure underlying price trends, remained at 3.6% in both months. In its August forecasts, the Reserve Bank expected underlying inflation to remain above 3% until mid-2027, before easing to the midpoint of its 2–3% target range in 2028. The bank linked the expected decline to easing capacity pressures and costs related to the conflict. These forecasts put the next price reading at the centre of the board's assessment, as it will provide a more recent indicator of the inflation path before the November meeting.
By contrast, Hauser said monetary policy was slowing the economy and the labour market was easing, while consumption growth remained limited, but he also pointed to some pockets of continued growth and a deteriorating inflation outlook. He described a difficult balance between slowing activity and the risk of persistent price pressures. Labour data support the easing side: seasonally adjusted employment fell by 39,300 people, or 0.3%, to 14,782,700 in September. The unemployment rate rose 0.1 percentage point to 4.7% in the same month, according to the Australian Bureau of Statistics. The bureau cautions against overinterpreting short-term changes, while the bank is watching whether the labour market slowdown continues alongside rising prices.
The Reserve Bank of Australia raised its cash rate target by 25 basis points to 4.60% on September 29, saying in its decision statement that the increase was approved unanimously. The bank said it would continue to do what it considered necessary to return inflation to target sustainably, including "increasing the cash rate target again if needed". This meant the option of further tightening remained open after the September meeting, while Hauser's remarks and Goldman Sachs' forecast made a November hike more prominent. The monetary policy board meets on November 2 and 3, according to the bank's schedule. The rate update is due on the second day, November 3, at 2:30 p.m.
Ahead of the meeting, the Australian Bureau of Statistics will publish September consumer price index data on October 28 at 11:30 a.m. Australian Eastern Daylight Time. Reuters estimated that third-quarter data could show headline inflation rising to 4.0%, with underlying inflation remaining near 3.5%, above the bank's 2–3% target range. These are estimates, not the official September data outcome, and the bureau's forthcoming reading is due days before the bank's decision. According to the agency's estimate, rising fuel costs reflect the impact of the Gulf conflict on prices. The bank will publish its quarterly monetary policy statement alongside its November decision announcement, according to the calendar cited in the coverage.