Brent Above $110 Adds to Inflation Risks Ahead of Australian Rate Decision
Key Facts
Reserve Bank of Australia Deputy Governor Andrew Hauser said inflation was likely to exceed the bank’s forecasts, as the outlook deteriorated amid rising oil prices. His remarks came as Brent crude topped $110 a barrel, compared with about $102 at the bank’s previous meeting three weeks earlier. The price was more than 35% above the level assumed in the bank’s forecasts released in August. The increase puts the energy shock at the center of debate over the inflation path ahead of the Monetary Policy Board’s November meeting. Hauser said it was "pretty clear" that inflation would come in higher than the bank had expected.
The latest available official data from the Australian Bureau of Statistics show the consumer price index rose 4.0% in the 12 months to August, compared with a 3.5% increase through July. Underlying inflation, measured by the trimmed mean, was 3.6% annually through August, unchanged from the 12 months to July. September data were scheduled for release on Oct. 28, while the bureau set Nov. 25 for the release of October data. Those dates put the September reading between the data available through August and the bank’s upcoming decision. The bank raised its cash rate target by 25 basis points to 4.60% in September, with the new level taking effect on Sept. 30.
Discussing risks to the outlook, Hauser said the Middle East conflict had lasted longer than the bank expected and fuel prices had risen again. He added that the artificial intelligence boom was affecting demand, while noting that capacity pressures were slightly higher than the bank’s estimates. In September, Governor Michele Bullock described the Middle East risk as "worse than we expected" and said the AI boom was "definitely having an impact." The risks flagged by the bank therefore include energy costs, demand linked to AI investment and capacity pressures. In its August forecasts, the bank saw underlying inflation staying above 3% until mid-2027 before easing to the midpoint of its 2–3% target range in 2028.
Oil’s rise coincided with signs of slowing in some parts of the economy, which Hauser said left the bank facing a difficult balancing act. He said monetary policy was working to slow the economy, the labor market was cooling and consumer spending growth was "pretty subdued," but some areas of growth remained resilient and the inflation outlook had deteriorated. Labor market data showed unemployment was 4.7% in September, its highest level in five years. The bank’s meeting minutes said inflation risks remained tilted to the upside after its fourth rate increase of the year. These indicators highlight the divide between price pressures and signs of moderation in the labor market and consumption.
Concern about oil and inflation was reflected in market pricing, which pointed to a probability of nearly 50% of a rate increase to 4.85% in November, up from 30% at the start of the week. Markets were also fully pricing in another increase by March 2027. Hauser said monetary policy could not directly address the oil shock, but had to prevent higher costs from passing through to inflation expectations. He added that some members of the public had begun questioning whether the bank could return inflation to its 2–3% target range. These remain market estimates, while the official decision will be issued by the bank’s board at the end of its meeting.
The Monetary Policy Board meets on Nov. 2 and 3, with its policy decision and statement due on Nov. 3 at 2:30 p.m. Australian Eastern Daylight Time. The bank’s quarterly Statement on Monetary Policy is also due at the same time. Minutes of the November meeting are scheduled for release on Nov. 17 at 11:30 a.m. in the same time zone. The decision follows September’s increase in the cash rate target to 4.60% and the emergence of fresh signs of higher oil costs. The statistics bureau is scheduled to release the October consumer price index on Nov. 25.