What happened
Reserve Bank Deputy Governor Andrew Hauser warned at a Sydney conference that Australia's inflation outlook is materially worse than previously forecast. With headline CPI at 4.0% in August and businesses anticipating 3.5% inflation as a new baseline, Hauser highlighted growing fears of entrenched price growth. Financial markets responded by increasing the probability of a November Melbourne Cup day rate hike from below 20% to 51%.
Why it matters here
A fifth interest rate increase this year would push Australia's official cash rate to 4.85%, its highest level since the global financial crisis. Higher borrowing costs threaten to further compress household discretionary spending, elevate mortgage arrears across vulnerable income bands, and increase debt-servicing costs for ASX-listed corporate borrowers while putting downward pressure on equity valuations.
What to watch
The RBA board meeting decision on 3 November, following the upcoming quarterly CPI release, which will determine if the cash rate rises to 4.85%.
Source
abc.net.au