RBA deputy governer Andrew Hauser warns of more rate hikes if inflation risks ‘crystallise’

The Reserve Bank of Australia will have to hike interest rates again if upside risks to inflation “crystallise”, deputy governor Andrew Hauser warns, reiterating that prices remain too high.

Mr Hauser has singled out three ‌upside risks to inflation — the Middle East conflict, the global artificial intelligence boom and poor productivity.

“If those upside risks to inflation crystallise and we don’t see inflation coming down, we will have to raise interest rates again,” he told an economic event in Brisbane on Wednesday.

The central bank left interest rates on hold for the second straight meeting last week, but governor Michele Bullock has hinted it could still hike rates, with inflation expected to remain high until the middle of next year.

“Everywhere you look, people say price rises are too high, cost pressures are too strong,” Mr Hauser said.

“Some of that is obviously not grown homegrown in Australia, some of it’s coming from the Middle East.

“We obviously know there’s a crisis going on over there that’s pushing energy prices up. But some of it does come from Australia and it comes in the form of excessive pressure on capacity.”

Mr Hauser said the board was not forecasting a recession and characterised the current path as a slowdown, as opposed to a sharper downturn.

He flagged that upside risks to inflation remained a genuine concern. If interest rates were increased by another 0.25 per cent, they would reach 4.6 per cent — a level not seen since late 2011.

Mr Hauser said the central bank had seen a bit of a slowdown in consumption and employment growth, but needed to see more.

“We’re going to need to see more to get inflation back. That’s not a slump. It’s not a depression,” he said.

“We’re forecasting consumption will still grow by one and a half per cent a year or thereabouts. Employment will still grow above one per cent.

“We’re not seeing in our forecasts a reduction in the number of jobs in the economy, but it’s a lot slower than Australia has known in the past and it’s a lot slower than recently.”

Asked if it was time for the Federal Government to pull levers to address excess demand in the economy, Mr Hauser warned against “playing with structural variables in the economy for fear of unintended consequences”.

“When you make a change, say you cut the tax rate for a period, it’s bloody hard to get back up,” he said.

“If you raise the rate, the contribution to superannuation, for example with the intent of increasing the savings rate, you might find that it’s very hard to get it back down again.

“Households could still adjust. They could still say, ‘well you know, since I’m saving on my superannuation fund, I’ll save less elsewhere’.”