Highlights

  • Andrew Hauser said the inflation outlook appeared materially worse than the RBA projected in August.
  • He identified the Middle East crisis, AI-related demand and domestic capacity constraints as major inflation risks.
  • The Deputy Governor said forecasts were still being finalised ahead of the next Monetary Policy Board meeting.

Australia's inflation outlook has become more difficult as oil prices, technology-related demand and domestic supply constraints remain in focus. Speaking at an investment conference in Sydney on 21 October 2026, Reserve Bank of Australia Deputy Governor Andrew Hauser said the inflation outlook looked materially worse than the central bank projected in its August report. He emphasised that staff forecasts were still being finalised and did not announce a decision about the next policy meeting.

Hauser framed the Board's task as balancing the need to contain inflation against the effects of higher interest rates on economic activity and employment. He said a period of below-trend growth was necessary to bring inflation down, while acknowledging that the latest signs from activity and the labour market were mixed.

Oil Prices and International Supply Disruptions

The Deputy Governor identified the prolonged Middle East crisis as one of three inflation risks previously highlighted by the RBA. He said oil prices were around one-third higher than assumed in its August projection. He also referred to higher refinery prices and fewer fiscal interventions in Australia as relevant developments.

Hauser distinguished the immediate price effects of supply disruptions from the risk of those effects feeding into broader inflation expectations. He said monetary policy could not directly reverse a foreign supply shock, such as a rise in imported oil prices, but could respond if the resulting price pressures generated more persistent second-round effects.

AI Demand and Domestic Capacity Pressures

A second concern was the scale of investment linked to artificial intelligence and technology. Hauser described rising AI and technology prices affecting consumer prices, alongside substantial data-centre construction in Australia. He characterised the immediate global investment impulse as a positive demand shock rather than an immediate increase in productive supply.

The third issue involved constraints on Australia's capacity to produce goods and services. Hauser said some of the strongest price increases were occurring in market services, a category closely associated with domestic capacity pressures. Business liaison contacts were also reporting costs as their leading concern, even while demand remained relatively subdued.

Inflation Expectations and the Policy Balance

The Deputy Governor pointed to a survey conducted with Macquarie University indicating that a growing share of businesses regarded inflation of around 3% to 3.5% as a possible new normal. He said the RBA was concerned about expectations moving away from its inflation target.

At the same time, Hauser noted subdued household confidence, a housing-market correction and some labour-market easing. He said stronger overseas demand, particularly in Asia, and local data-centre investment were offsetting parts of that weakness. The Board would consider these developments in its forthcoming forecasts and policy deliberations.

Key Insights

The 21 October remarks described a deteriorating inflation assessment rather than a new policy decision. Hauser identified international energy costs, AI investment and domestic capacity pressures as the principal issues, while emphasising that tighter policy was also affecting households and employment. The next assessment remained subject to updated data and forecasts.