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4h ago

RBA Faces Higher-for-Longer Rates as Oil Keeps Inflation Elevated

Supply-driven price shocks are lifting fuel and food costs and forcing the central bank to consider further hikes that could slow the economy.

Mortgage holders are bearing the brunt of higher spending from both governments and AI companies. (AAP PHOTOS)
The housing market has cooled since the tax changes were announced in May. NewsWire / Max Mason-Hubers
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Overview

  • The Reserve Bank has set the cash rate at 4.6%, its highest in 15 years, and officials say persistent oil above US$100 and other commodity rises are keeping inflation above target.
  • Financial markets sharply reduced the chance of a November rate rise after weaker jobs data, but the bank warns the neutral interest rate may have moved higher because of global competition for capital from AI and data-centre investment.
  • Diesel, LNG and several food-commodity prices have jumped, with the IEA warning higher diesel is starting to hit real incomes and push up production and transport costs.
  • Leading economists and bank chiefs say another tightening risks tipping Australia into recession or lifting unemployment, so they urge a cautious approach to further hikes.
  • The fiscal stance will matter for outcomes with the RBA watching the government’s December mid-year budget update for any moves that could blunt or bolster monetary policy and household relief.