Australia’s central bank is facing a tougher inflation problem than it expected two months ago. Deputy Governor Andrew Hauser told an investment conference in Sydney on Wednesday that the outlook now looks materially worse than in August, that the quarterly trimmed mean, the bank’s preferred measure of underlying inflation, appears set to come in higher than forecast, and that capacity pressures are more elevated than anticipated, with firms reporting cost pressures as their number one problem.
The board’s dilemma, as Hauser set it out, is a slowing domestic economy against the risk that high inflation is becoming embedded in expectations. Some households and businesses, he said, are no longer confident inflation will return to the 2.5 percent target, some businesses are treating inflation of 3 to 3.5 percent as the new normal, and the bank cannot allow expectations to drift. He also noted the offsets: September’s labour report was a little weaker than expected, housing data has slowed, and monetary policy is working.
Markets moved before the speech had finished travelling. Before it, pricing put close to a one in three chance on a rise to 4.85 percent at the November 3 meeting; afterwards, reported pricing ranged from about 44 percent to near 50 percent for November, with a December move priced higher still, and Goldman Sachs changed its call to expect a 25 basis point increase in November, having previously forecast a hold. The Australian dollar rose above 0.70 dollars, and this site’s market tables show AUD/USD at 0.7037, up 0.78 percent on the day, the largest gain among the major currencies tracked.
The cash rate stands at 4.60 percent after the September 29 increase, the fourth hike of 2026. The September quarter inflation data due on October 28 is now the deciding input: a trimmed mean at or above the level Hauser flagged would make a fifth hike the base case, and a soft print is the only clear route to a hold.