Expectations of another Australian interest rate increase have surged after Reserve Bank deputy governor Andrew Hauser warned the inflation outlook had become materially worse than policymakers expected only two months ago.
Financial markets are now placing the probability of a November increase at around 50%, up sharply from roughly 30% before Hauser’s latest comments.
Another 25-basis-point increase would take the cash rate from 4.60% to 4.85%, extending a tightening cycle that has already delivered four increases during 2026.
Hauser said higher oil prices, persistent domestic services inflation and growing technology-related costs were placing additional pressure on prices.
Inflation report becomes critical
The immediate focus is the September-quarter Consumer Price Index due next week.
Economists increasingly believe a trimmed mean quarterly inflation reading of 0.9% or higher could make it difficult for the RBA to leave rates unchanged at its November 3 meeting.
The central bank had previously forecast a 0.8% increase.
Hauser also expressed concern that inflation expectations could become embedded at higher levels if Australians begin assuming prices will continue rising faster than the RBA’s 2%-3% target.
That is particularly important because inflation expectations can influence wage demands and business pricing decisions, making price pressures harder to reverse.
The RBA is simultaneously dealing with a softer labour market, with unemployment rising to 4.7%.
However, Hauser suggested some of the latest employment weakness could reflect statistical noise and emphasised that Australia still has one of the lowest unemployment rates among major economies.
The message from the RBA is increasingly clear: controlling inflation remains the priority, even if further rate increases increase the risk of a sharper economic slowdown.
