RBA’s Harper Warns Rising Inflation Expectations Could Require “Strong Action”

RBA board member Ian Harper struck a hawkish tone in his speech today, warning that rising long-term inflation expectations could become a significant concern for policymakers. Harper emphasized that “inflation expectations are important” and noted there is “a concern about what’s happening at the long-end,” referring to signs that markets increasingly expect inflation to remain above target for an extended period.

While acknowledging that higher interest rates are expected to slow the economy, Harper stressed that the central bank’s priority remains preventing inflation from becoming entrenched. His strongest message came when discussing inflation expectations directly, warning that “if there is a risk that long-term inflation expectations are becoming unanchored, as we say, then that requires strong action.”

Harper also highlighted the inflationary impact of the Middle East energy shock, noting that price pressures were already re-emerging before fuel costs surged. While the RBA cannot prevent the initial increase in energy prices, he said policymakers are responsible for “ensuring that those effects do not become embedded in the Australian economy.”