Reserve Bank of Australia governor Michele Bullock has admitted the recent inflation surge was stronger than the central bank had been expecting, fuelling concerns of a Melbourne Cup Day rate hike.
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Ms Bullock told a Senate estimates hearing on Thursday the September quarter inflation figures released a day earlier were "a little bit higher than we had been forecasting" but added that the central bank was "still analysing the numbers".
In her first appearance before the Senate Economics Legislation Committee as RBA governor, Ms Bullock chose her words carefully and refused to be drawn on how the latest consumer price index report may influence the central bank's interest rate deliberations.
But she told the committee that while growth in the cost of goods was slowing, "services inflation is generally remaining fairly persistent".
![RBA deputy governor Christopher Kent and governor Michele Bullock appearing before the Senate Economics Legislation committee on Thursday. Picture by Sitthixay Ditthavong RBA deputy governor Christopher Kent and governor Michele Bullock appearing before the Senate Economics Legislation committee on Thursday. Picture by Sitthixay Ditthavong](/images/transform/v1/crop/frm/202296158/6f9da5b6-5887-43f0-9360-8bf9c16677b0.jpg/r0_266_5200_3190_w1200_h678_fmax.jpg)
The governor said rising input costs like electricity, rents and wages were all contributing to push service prices higher.
Australian Bureau of Statistics figures show headline inflation rose 1.2 per cent last quarter to be up 5.4 per cent from a year earlier.
While the result confirmed that inflation is slowing, the quarterly increase - underpinned by a 7.2 per cent jump in fuel costs and the biggest annual rise in rents in more than a decade - was larger than many had expected, raising concerns that the Reserve Bank may have to do more to bring inflation down.
Market expectations of a November 7 rate hike to 4.35 per cent surged from 21 to 55 per cent following the release of the inflation report and several economists have flagged the risk of a follow-up hike in December to 4.6 per cent.
The speculation has been heightened by what has been interpreted as 'hawkish' language from the Reserve Bank about the inflation outlook.
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In the minutes of its October 3 meeting, the RBA board indicated that it had "a a low tolerance for a slower return of inflation to target than currently expected", and on Tuesday Ms Bullock gave a speech in which she warned that the central bank that the central bank "will not hesitate to raise the cash rate further if there is a material upward revision to the outlook for inflation".
But the governor told Thursday's committee hearing that there was nothing new in the statements, and that the RBA had always had low tolerance for signs that people's inflation expectations were rising.
She said the longer that inflation remained elevated, the greater the risk those expectations would drift up.
But Ms Bullock rejected the suggestion that the federal government's handling of its finances was adding to the country's inflation problem.
The Coalition has taken aim at government spending as an inflation concern, but the RBA governor told Liberal senator Jane Hume that the government's decision to bank most of its revenue windfall from higher company and personal taxes was helping the central bank in its inflation fight.
"We're being assisted, if you like, by the fact that the government has taken what is ... the cyclical benefits of the budget and banked them. I think that's very positive," she said.
Treasurer Jim Chalmers said the governor's comments "made it clear that the Albanese government's budget strategy is the right approach to fighting inflation".
"Her endorsement of our fiscal strategy shows our efforts to address inflation are making a meaningful and positive difference," the treasurer said.
Greens senator Nick McKim asked Ms Bullock about Organisation for Economic Cooperation and Development research which suggested that corporate profit taking was adding to inflation in many countries.
But the governor replied that, outside the booming mining sector, aggregate profit margins in Australia had been stable.
She said that strong consumer demand had enabled companies to protect existing margins and avoid having to resort to discounting to protect or build market share, she said, but there was no evidence of price gouging.
The governor also dismissed concerns of a wage-price spiral developing, saying that although wages were growing more quickly they "[don't] appear to be accelerating at this point".