Reserve Bank of Australia (RBA) Deputy Governor Andrew Hauser said on the 21st that while monetary tightening is working to slow the economy, the inflation outlook is instead deteriorating, indicating that it is difficult at this point to judge whether to proceed with an additional rate hike at the November board meeting. He made the remarks in a speech at a Citi-hosted investment conference.

According to the deputy governor, RBA economists are still in the process of finalizing their quarterly economic forecasts, and therefore he cannot indicate at this point what decision will be made at the next meeting. However, he said the inflation outlook appears to have “deteriorated markedly,” citing factors such as rising crude oil prices.

Current oil prices are significantly exceeding the RBA’s assumptions. Brent Crude recently stood at $108 a barrel (about ¥17,000), up from $102 (about ¥16,000) at the meeting three weeks ago when the RBA decided on its fourth rate hike this year. That is roughly 30% above the level the RBA had envisioned as of August.

Hauser said monetary policy cannot directly address the oil shock itself, but indicated that it is necessary to prevent cost increases from feeding into higher inflation expectations. He also said it is “fairly clear” that price statistics will exceed the RBA’s forecasts.

He also touched on the difficulty of conducting policy. “Monetary policy is working, labor market conditions are easing, and consumption growth is quite subdued. But some parts are still growing, and the inflation outlook is deteriorating, so balancing this is very difficult,” he said. “The challenge facing the board is whether to take additional measures to address high inflation or to wait and see in order to protect the labor market,” he added. “We are being forced to make a difficult choice, and I think that is the reality we face.”

The RBA will decide at its November 2-3 board meeting whether to raise rates for the fifth time this year. Markets are currently pricing about a 40% probability that the policy rate will be raised from the current 4.60% to 4.85% at the next meeting, up from 30% at the start of the week. An additional rate hike through May next year is fully priced in.

Next week, the Consumer Price Index (CPI) release is scheduled. Market participants widely expect that the upcoming inflation data and September employment statistics will influence the rate decision.

ItemLatest Level/ForecastPolicy rate (current)4.60%Probability of rate hike at November meetingAbout 40% (30% at start of week)Brent Crude$108 a barrel (about ¥17,000)Oil price at previous hike (three weeks ago)$102 a barrel (about ¥16,000)

Note: Policy rate and rate hike probability are market-implied values. Oil prices reflect the latest Brent Crude market.

The RBA has already implemented four rate hikes this year to curb inflation, but the pattern in which rising energy prices are pushing up the inflation outlook has become increasingly clear. On the demand side, the labor market is showing signs of slowing, but supply-side constraints are instead intensifying, serving as a structural factor supporting inflation stickiness. Hauser explained that businesses are citing cost pressures as their biggest concern, and indicated that pricing behavior and the pass-through channels from wages to prices will be important variables in gauging the future inflation path.

Among market participants, the dominant view is that the RBA will remain unable to provide clear forward guidance. With economic forecast finalization and inflation data releases overlapping in an information-intensive period, slight fluctuations in individual indicators such as employment, prices, and retail sales are expected to significantly sway speculation in interest rate futures markets. For the Australian dollar and domestic bond markets as well, next week’s CPI release is likely to be a turning point that determines short-term direction.