Core inflation rose to 3.3 per cent in October, taking it further above the RBA’s target band of 2 per cent to 3 per cent
[SYDNEY] Australia’s central bank this month considered whether a rise in interest rates might be needed in 2026 given a recent pick up in inflation, but felt it would take a “little” time to know for sure.
Minutes of the Reserve Bank of Australia’s December policy meeting showed its board judged inflation risks had increased following surprisingly high readings for consumer prices in October and the third quarter.
However, some of the lift in inflation could be due to volatile factors and it would be important to see figures for the fourth quarter due in late January.
“Members discussed the circumstances in which…an increase in the cash rate might be needed to be considered at some point in the coming year,” the minutes showed.
“While recent data suggested the risks to inflation had titled to the upside, members felt it would take a little longer to assess the persistence of inflationary pressures.”
RBA Governor Michele Bullock had already taken a hawkish turn at a post-meeting media conference, ruling out further rate cuts and warning hikes might be needed if inflation did not subside.
Consumer price inflation surged to 3.8 per cent in October, in part due to the ending of some government electricity rebates, a factor that will bias the annual rate higher out to mid-2026.
More importantly for policy, core inflation picked up to 3.3 per cent in October taking it further above the RBA’s target band of 2 per cent to 3 per cent and alarming board members.
Still, if the pick up in inflation did prove temporary then holding the cash rate steady at 3.60 per cent “for some time” might be sufficient to keep the economy close to balance, the board judged.
That raised the stakes for inflation figures for December and the whole fourth quarter due in late January, where a high reading could just push the RBA into tightening at uts next meeting on Feb 3.
Markets have already swung wildly to price in the risk of a rate hike, with a February move seen at around 25 per cent. A quarter point rise in the cash rate is fully p[riced by July, with 44 basis points of hikes implied for 2026.
The minutes showed the RBA board was divided on whether financial conditions were restrictive enough to restrain inflation, with some citing aggressive lending by banks and strength in house prices as evidence conditions were no longer tight.
The board did agree that the labour market was still a little tight and the economy was likely operating with excess demand. Elevated measures of capacity utilisation also pointed to supply constraints. REUTERS
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