RBA Assistant Governor (Economic) Sarah Hunter warned that the inflationary impact of the Middle East oil shock has further to run, with higher energy costs already spreading beyond petrol prices into broader supply chains. In a 60 Minutes interview aired on October 25, Hunter said rising fuel costs were starting to affect construction materials and other prices, with further pass-through expected. “We think that there’s a bit more of that to come, unfortunately, because it’ll take a bit of time to get through the system,” she said. The external shock is adding to inflation pressures that were already proving difficult to contain domestically.
Hunter emphasized that Australian demand continues to exceed the economy’s sustainable supply capacity, creating an inflation challenge independent of developments overseas. Asked whether the RBA had done enough after four interest rate hikes this year, she replied, “Unfortunately, not quite yet.” She stressed that monetary tightening was working but required more time to take effect. “We’ve got to make sure inflation doesn’t become embedded,” she said, referring to the external shock. Hunter also acknowledged that government spending contributes to aggregate demand, while emphasizing that fiscal decisions are the responsibility of elected governments rather than the central bank.
Despite the pressure on household finances, Hunter rejected the suggestion that Australia was approaching a recession, saying the RBA had not identified such warning signs in economic data or business liaison. She acknowledged weak retail conditions and falling house prices but said there was no evidence of widespread mortgage distress. “It’s certainly not our baseline forecast,” she said of a sharp economic downturn. Hunter declined to anticipate future interest rate decisions, stressing that the Board remained committed to containing inflation while avoiding an unnecessary recession. Her comments reinforce the RBA’s determination to sustain inflation restraint, without explicitly signalling another rate hike.
Key Takeaways
- Oil shock has further to run: Hunter warned that rising energy costs are spreading beyond petrol into construction materials and supply chains, with additional inflation pass-through expected.
- Domestic inflation pressures persist: Demand continues to exceed Australia’s sustainable supply capacity, creating an underlying inflation challenge alongside the external energy shock.
- Four rate hikes have not finished the job: Asked whether the RBA had done enough, Hunter replied, “Unfortunately, not quite yet.” However, she did not explicitly signal another rate increase.
- No recession or systemic mortgage distress evident: Despite weaker retail conditions and falling house prices, Hunter said the RBA had not identified signs of an impending recession or widespread financial distress.
- No commitment on future interest rates: Hunter declined to anticipate the Board’s next decisions, emphasizing the need to contain inflation without causing an unnecessary economic downturn.
