
Potential Rise in Inflation Raises Concerns
Sarah Hunter, Assistant Governor of the Reserve Bank of Australia (RBA), recently stated that Australia's core inflation might be stronger than previously expected, indicating that both the labor market and the overall economy remain tight. This statement has been interpreted by the market as a sign that the RBA will be more cautious with its monetary easing path.
Speaking at the Citi Australia and New Zealand Investment Conference in Sydney, Hunter pointed out that underlying price growth in the three months to September was higher than the central bank's internal forecasts, suggesting that inflationary pressures have not yet been fully alleviated. She emphasized that the central bank team is "actively analyzing" data in preparation for the quarterly economic outlook report to be released in November.
Analysts believe this statement means the central bank is unlikely to rush into further rate cuts this year and will wait for the third-quarter inflation figures before making a decision.
Data Shows Price Stickiness Persists
Recent monthly inflation data reveals that the CPI in July and August exceeded market expectations consecutively. Housing rents, medical services, and education costs continue to drive overall prices upward, particularly in eastern coastal cities, where rent increases have reached a five-year high.
According to data from the Australian Bureau of Statistics, housing sector prices rose by 0.9% month-on-month, while service sector inflation maintained a high year-on-year growth rate of 4.1%. Economists point out that behind this structural inflation are a tight labor market and ongoing wage growth.
Hunter admitted in her speech that although overall inflation has significantly retreated from its 2023 peak, core indicators remain stubborn. She stated, "We expect inflation to remain slightly above the upper limit of our target range in the short term, which requires the policy committee to remain cautious in the coming months."
Policy Makers Adopt More Cautious Stance
Since the second half of 2024, the Reserve Bank of Australia has cut interest rates three consecutive times, bringing the cash rate down to 3.6%. However, as inflation risks re-emerge, policymakers are re-evaluating the pace of rate cuts.
Hunter pointed out that the monetary policy committee will "adjust its policy stance based on economic data" in future meetings and emphasized that the central bank will not act to cater to market expectations. She added that the central bank team "will continue to monitor changes in inflation expectations, employment data, and consumer spending" to ensure the policy direction aligns with the economic reality.
In the market, traders are divided on the prospects for a rate cut in the November meeting. According to data from the Australian Securities Exchange (ASX) interest rate futures, the probability of a 25-basis-point rate cut has fallen from a previous 82% to about 56%.
Labor Market Supports Inflation Stickiness
Hunter specifically mentioned that the tight labor market is a key obstacle to reducing inflation. The unemployment rate has maintained around 4.1%, significantly lower than pre-pandemic levels, and companies generally report difficulty in hiring.
A survey released by the National Australia Bank (NAB) showed that more than half of businesses expect to continue raising wages over the next six months, especially in the service sector and public sector. Hunter noted that this persistent wage pressure "may lead to a slower-than-expected decline in inflation," thus delaying the timetable for policy easing.
Moreover, although household consumption expenditure has slowed compared to the first half of the year, it still maintains positive growth. Analysts believe this means the demand side has not significantly cooled, making it difficult to curtail prices downward.
Market Outlook: Rate Cut Pace May Slow
Economists generally believe that the third-quarter inflation data, to be published on October 29, will be a key variable for the central bank's decision-making. If core inflation remains higher than expected, the Reserve Bank of Australia may choose to hold off at the November meeting.
Josh Williamson, Head of Economics at Citibank Australia and New Zealand, stated: "Hunter's remarks suggest the central bank is in no rush to continue rate cuts. The stronger the inflation resilience, the more likely policy easing will be postponed until early 2026."
Investment institution AMP Capital also pointed out that the RBA's cautious attitude reflects concerns about global economic uncertainty and domestic demand resilience. "Unless employment weakens significantly in the coming months, Australia's monetary policy easing will be slower and more measured."
Ongoing Dilemma in Policy Balancing
Overall, the Reserve Bank of Australia is in a delicate phase of policy balancing—needing to prevent the economy from slowing down too quickly while maintaining price stability. With persistent inflation stickiness and wage growth, the central bank may be forced to keep interest rates higher for a longer period.

