Reserve Bank of Australia (RBA) Assistant Governor Sarah Hunter has flagged that the risk of inflation expectations shifting higher is elevated, citing concern that rising energy costs could pass through to consumer prices faster than usual given the current state of the domestic economy.
Hunter’s comments, reported by Reuters, point to a central bank on guard against a secondary inflation problem โ one where households and businesses begin to expect higher prices and adjust their behaviour accordingly, making inflation self-fulfilling and harder to bring down.
The RBA has been navigating a difficult path between a cooling labour market and persistently sticky services inflation. Higher energy prices add a fresh complication, particularly if they translate into broader cost pressures across transport, manufacturing, and household bills.
What This Means for Australian Traders
For traders watching AUD/USD, a more hawkish RBA tone โ even in the form of cautionary language โ can be supportive of the Australian dollar, as it reduces the likelihood of near-term rate cuts. The RBA’s next board meeting and updated forecasts will be closely scrutinised for any revision to the inflation outlook.
On the ASX 200, rate-sensitive sectors including real estate investment trusts (REITs) and consumer discretionary stocks could face renewed pressure if markets begin pricing out cuts that had been anticipated later in 2025. Utilities stocks may also see volatility given their direct link to energy pricing.
What to Watch Next
The key data point to monitor is Australia’s next quarterly CPI release, which will indicate whether energy-driven price pressures are materialising at the consumer level. Any upside surprise would validate Hunter’s concerns and likely push back RBA rate cut expectations further, with direct implications for the AUD and rate-sensitive ASX sectors.
Directional bias: Wait-and-see. Hunter’s tone is cautionary rather than explicitly hawkish, but the inflation risk flag keeps the door open for rates staying higher for longer than markets currently expect.
Source: FX Street