Key Highlights

  • Deputy Governor Andrew Hauser said a growing share of businesses now see Inflation of 3 per cent to 3.5 per cent as the "new normal".
  • He called the trend "the central banker's nightmare" and said the inflation outlook is "materially worse" than the August projections.
  • The Monetary Policy Board meets on 2 and 3 November 2026; Hauser's remarks are not a Board decision.

Inflation expectations matter to the Reserve Bank of Australia because they can become self-fulfilling. If businesses plan on higher price rises, they may raise prices faster, and the Central Bank then has more work to do. That is why Deputy Governor Andrew Hauser used strong language about them this month.

What Hauser said and when

Speaking at Citi's Australia and New Zealand Investment Conference in Sydney on 21 October 2026, Hauser said a growing share of businesses now see inflation of 3 per cent to 3.5 per cent as the "new normal". He cited a Business survey conducted with Macquarie University, and called the trend "the central banker's nightmare". He added: "We can't allow expectations to shift away from the target."

These are Hauser's remarks in a public conversation. They are not a new decision of the Monetary Policy Board.

The wider inflation picture

Hauser said the inflation outlook is "materially worse" than the August projections. He pointed to oil prices about a third higher than assumed in August, and to artificial intelligence-related technology prices feeding into consumer prices. He also said capacity pressures look greater than previously thought, and that market services inflation is strong.

The Board's September minutes, published on 13 October, point the same way. They say upside risks identified in August had materialised, and that excess Demand is greater than previously assessed. The Board raised the cash rate target to 4.60 per cent on 29 September.

Why expectations carry so much weight

Central banks try to keep expectations anchored near their target because the target is a promise. If households and firms stop believing it, they build higher inflation into wages and prices. Reversing that later usually requires tighter policy and a larger cost to jobs. Hauser also noted that central banks cannot offset Supply shocks such as higher oil prices. Their aim is to stop one-off or persistent shocks from producing second-round effects and rising inflation expectations.

Hauser described the Board's trade-off in these terms: tighten further and weaken activity and the labour market, or hold to protect jobs and risk that upside inflation becomes more costly to fix later.

Practical implications

For businesses, the message is that the RBA is watching pricing behaviour closely. For households, it helps explain why the Board has been willing to raise rates while growth is soft. Hauser said that monetary policy is working, with the labour market easing, consumption "tepid" and the housing market correcting.

The cash rate is not your Mortgage or savings rate. Lenders set those themselves, so a Board decision does not translate automatically or identically into customer rates. If shocks are temporary and expectations anchored, looking through them is appropriate, he said, but large or persistent shocks require a tightening response.

Limits and uncertainty

Survey evidence on expectations is only one indicator. Hauser also noted offsetting factors, including stronger-than-expected Asian demand and a data centre construction boom supporting business investment. He cautioned that some labour market figures may be affected by changes to survey methods, though he said the labour market is clearly easing.

What to watch next

Hauser said the September-quarter Consumer Price Index would likely show quarterly trimmed mean inflation above the August assumption, though he stressed that the RBA does not target one data point. The Monetary Policy Board meets on 2 and 3 November 2026. Updated RBA forecasts and the accompanying statement will show how the Board now weighs inflation expectations against jobs.