Australia's central bank admits inflation fight isn't going to plan

For five years, Australia's Reserve Bank has struggled to bring inflation back to its 2.5% target, largely without success, fuelling widespread public frustration over the cost of living.

Speaking on the ABC's 7:30 program on Tuesday, RBA deputy governor Andrew Hauser acknowledged that people are furious about persistently high inflation. He said the bank isn't yet ready to declare "enough is enough", though that moment appears to be getting closer.

A plan derailed

The RBA's nine-member board had hoped that three rate hikes this year would gradually steer inflation down to 2.5% by the end of next year. Instead, several factors have worked against that goal.

The most significant is the collapse of the US-Iran ceasefire, which has triggered escalating strikes on oil tankers and infrastructure near the Strait of Hormuz. Global oil prices have climbed above $100 a barrel for the first time since July, pushing Australian fuel prices higher again.

At the same time, a sudden boom in datacentre investment this year has added pressure to a construction sector already stretched thin on materials and labour needed for housing, roads and rail projects. Despite widespread complaints and low household morale, consumer spending has remained surprisingly resilient, while Australia's productivity growth stays flat.

Markets bet on a hike

Investors and a growing number of economists believe the RBA is nearing the point where it must act more forcefully. Financial markets are pricing in more than a 70% chance of another rate rise on 29 September, with some chance of a second hike before year's end.

Hauser explained the board has deliberately taken a gradual approach to protect employment — unemployment has stayed below 5% for almost the entire period since mid-2021, an unusually strong record. Still, he indicated the balance is shifting, with inflation remaining the bank's central concern.