Risk of November interest rate rise increasing amid Middle East conflict

In her first public appearance since assuming the top job at the central bank, Ms Bullock told a business forum in Sydney that although the central bank would typically "look through" supply shocks, the Reserve Bank was "a bit more worried" about the implication of renewed conflict in the Middle East for inflation.

The cost of fuel was already rising before Hamas's deadly incursion into southern Israel earlier this month and fears that the conflict could spread and disrupt global oil supplies has driven prices higher. The cost of brent crude reached more than $US91 a barrel early on Wednesday.

"The problem is that we have got shock after shock after shock and the more that that keeps inflation elevated, the more people adjust their thinking ... and their inflation expectations and the more entrenched inflation is likely to become," Ms Bullock said.

While inflation is moderating, Ms Bullock said elevated prices for services like takeaway food, hairdressers and restaurants were proving to be "sticky".

Markets think there is about a one in three chance of a November 7 rate rise and the RBA board's warning that it had "low tolerance" for any unanticipated delay in bringing the inflation rate down has fueled concerns that there could be a further rate hike next month.

"The [RBA] board has a low tolerance for a slower return of inflation to target than currently expected," the minutes of the board's October 3 meeting said.

READ MORE:

This is despite Ms Bullock admitting that tight monetary policy was already biting into household budgets even though the full impact of recent interest rate hikes was yet to be felt.

"We know a lot of households are finding it difficult because interest rate rises have started to eat into their spare cash flow," the RBA governor said.

"There are signs that people are taking measures [to cut their spending]," Ms Bullock said.

"People have smaller basket sizes or they are trading down to home brands or something like that.

"This would be particularly the case for people impacted by high interest rates because if they are going to make their mortgage repayments they are going to have to cut back on some discretionary spending."

Treasurer Jim Chalmers said Middle East tensions have added to uncertainty on global oil markets and increased local fuel prices.

It was one of the reasons inflation was not moderating "as fast as we'd like", Dr Chalmers said.

The treasurer said the government was acting to relieve living cost pressures on families with a $23 billion package of measures including energy bill rebates, childcare subsidies, rental assistance and cheaper prescriptions.

But opposition treasury spokesman Angus Taylor said people were "paying a high price for a government that is distracted".

"The treasurer can spin it whichever way he likes but the reality is households are hurting, life is getting harder...and the economy is shuddering to a halt. His plan is clearly not working," Mr Taylor said.

While the number of mortgage defaults remains low, the RBA governor said they were increasing and credit agency illion has reported a 15 per cent jump in the number behind on home loan repayments.

Ms Bullock said it was clear that some households were struggling to make ends meet.

"There is a small but not insignificant group of people who look like their income is not going to be able to cover mortgage payments and their essential expenditure," the governor said.

"There is a group of people that really are hurting here and that is going to be very challenging for them."