Reserve Bank of Australia Governor Michele Bullock has sharpened the inflation warning ahead of the central bank's next policy meeting. Reuters reported that Bullock said some upside risks identified by policymakers now appear to be materialising, with the Middle East conflict lifting energy costs while the AI investment boom adds demand and capacity pressures.
The September meeting becomes more consequential
The RBA held its cash rate at 4.35% in August after earlier tightening. Bullock said the board must assess whether the current setting is sufficiently restrictive to return inflation to target, making incoming inflation and activity data especially important for AUD and Australian bond markets.
Persistently elevated energy prices can lift headline inflation and production costs while reducing household purchasing power. That combination creates a difficult policy trade-off: tighter rates may be needed to contain second-round inflation even as the energy shock weighs on real growth.
Bullock also pointed to the global AI boom as a source of pressure through investment demand. Large spending on data centres, power infrastructure and technology supply chains can support productivity over time but may strain electricity, construction and equipment capacity in the near term.
Watch Australian CPI and labour data, RBA rate pricing, the two- and ten-year government bond curves, AUD/USD and oil. A stronger signal that the RBA is preparing another hike would likely support the Australian dollar and front-end yields, while weaker domestic data could complicate that reaction.
Affected markets: FX · Rates & Bonds · Equities · Commodities