The case for another interest rate rise is getting stronger, after Reserve Bank Governor Michele Bullock warned that inflation risks are materialising even as economic growth slows.

Appearing before a parliamentary committee on Friday, Bullock played down recent falls in house prices, arguing Australia’s underlying housing shortage will put a floor on falls. More importantly, she warned the renewed Middle East conflict has worsened the trade-off between inflation and unemployment.

In simple terms, higher energy prices can push inflation up while simultaneously weakening the economy. That means a softer jobs market may not be enough to prevent another rate rise.

Economists are taking notice. UBS now expects two more increases this year, while Westpac has brought forward its next expected hike to the RBA’s September 29 meeting. All the major bank economists are now forecasting another increase.

The RBA also meets in November and December, leaving open the prospect of further tightening if inflation refuses to cooperate.

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Greed-o-meter

Fear & Greed Q+A today

On the week ahead for the economy, and also why last week's interest rate hike from the US Fed calmed bond markets:

 

“What was happening in the bond market in the US, but also globally to a point, was a concern that central banks weren’t hiking to contain inflation. Inflation had been stubbornly above the target range. And let’s just focus on the US again, because that’s where the central point, if you like, of global bond market yields are sourced from.

 

The market wanted to see the Fed coming out, putting aside the rhetoric of Donald Trump and saying, look, we are fair dinkum about containing inflation, and that means we’re going to hike interest rates without fear or favour, and use that higher interest rate setting to cool the US economy down and, with that, rebuild our inflation credibility.”

News in brief

Global AI rules: Anthony Albanese says Australia and other like-minded nations will push for an international framework for AI that ensures “humans remain in control”. Copyright remains a major sticking point, with OpenAI and Anthropic pushing for access to material used to train AI models.

Fuel-price shield: Opposition Leader Angus Taylor has proposed automatically halving the fuel excise when Brent crude averages more than $US100 a barrel for two weeks. The Coalition says that would cut petrol and diesel prices by 27 cents a litre, saving about $15 on a typical tank.

Firmus float: AI infrastructure company Firmus Technologies is reportedly targeting a $7 billion IPO that could value it at more than $50 billion. If successful, it would be Australia’s second-largest float behind the first tranche of Telstra’s privatisation.

House auctions: The preliminary capital-city auction clearance rate fell 4.6 percentage points to 54 per cent as expectations of another RBA rate rise increased. Sydney fell to a seven-week low of 54.2 per cent, while Melbourne dropped to 56.3 per cent.

Siri’s AI upgrade: Apple’s revamped Siri has arrived with iOS 27, and early reviews are largely positive. Siri AI can handle more complex conversations and search across messages, emails and photos — although reviewers say it still has ground to make up on the most advanced AI agents.

Fear-o-meter

RBA Governor Michele Bullock, from her opening statement to the House of Representatives Standing Committee on Economics:

“Our latest forecasts – which were published in the August Statement on Monetary Policy – suggested that inflation will not return to around the midpoint of the target range until late 2027. At the time of the August Board meeting, we assessed that the risks to that outlook were skewed to the upside.

“Developments since then suggest that although growth in the Australian economy is slowing, some of these upside risks to inflation appear to be materialising. Global cost pressures have increased – the Middle East conflict, the AI boom and extreme weather events are contributing to upward pressure on a range of energy, agricultural and technology-related prices.

“There is little sign of resolution of the Middle East conflict. Oil and related prices have increased sharply again and will add directly to inflation.”

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