Reserve Bank of Australia (RBA) Deputy Governor Andrew Hauser warned that inflation risks had risen ahead of a November rate decision, while weaker employment left the bank weighing the costs of another increase.
Reuters reported that traders put the probability of a November increase at about 50%, compared with 30% at the start of the week. The figures reflect market pricing ahead of the board’s decision.
The RBA raised its cash rate target to 4.60% in September, its fourth increase this year. Hauser said the bank had also raised rates in February, March and May. Another quarter-point increase would bring the target to 4.85%.
The Australian Bureau of Statistics (ABS) said consumer prices rose 4% in the year to August. Its September labor data put unemployment at 4.7% and showed that seasonally adjusted employment fell by 39,300 people in September. Those figures place persistent price pressure alongside signs of a softer labor market.
Hauser said further rate increases risked weakening activity and employment, while leaving rates unchanged could make inflation harder to bring down. He said higher rates strain mortgage holders, whereas persistent inflation falls particularly heavily on low-income renters.
Speaking at an investment conference in Sydney on Oct. 21, Hauser said oil prices stood about one-third above the level the RBA had assumed in August. He also pointed to rising technology-related prices and domestic capacity pressures.
Hauser cited the BOSS survey, which the RBA works on with Macquarie University. A growing share of businesses surveyed regarded inflation of 3% to 3.5% as normal, he said, raising concern that expectations could drift from the bank’s target.
Market expectations have shifted since the labor report. Reuters previously said market-implied odds of a November increase fell to about 9% after the jobs figures, from 32% beforehand.
The ABS is scheduled to publish its next consumer price report Oct. 28. The RBA board meets Nov. 2-3 and is due to announce its rate decision Nov. 3.
