In a fireside chat at the Committee for Economic Development of Australia, Reserve Bank of Australia Governor Michele Bullock highlighted signs that previously identified upside inflation risks may be materializing. Excess demand persists, oil prices remain elevated and the Middle East conflict has lasted longer than initially expected. Bullock gave no guidance on her vote or the Monetary Policy Board’s next decision, but identified these factors as central to its consideration of whether interest rates need to rise. Recurring supply shocks complicate monetary policy because they weaken the trade-off between inflation and unemployment. Policy must therefore limit second round effects and keep inflation expectations anchored. Bullock estimated that unemployment between 4.5% and 5% would probably remove enough pressure from the labor market to ease inflation, presenting this as an economic assessment rather than a tolerance threshold. She also said artificial intelligence investment is adding to demand before delivering clear supply or productivity gains. The rise in long-term bond yields remains orderly and appears to reflect higher real yields rather than unanchored inflation expectations, although potential disorderly corrections in artificial intelligence related asset valuations remain under review. The Financial Stability Review on Oct. 1 will address relevant vulnerabilities. Separately, the RBA plans to summarize feedback from its retail payments review shortly, with the Payment System Board expected to set priorities after its November meeting.

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