Australia's inflation upside risks emerge, RBA faces further tightening pressure at next week's policy meeting.

Reserve Bank of Australia (RBA) Governor Michele Bullock said at a Senate committee hearing on Wednesday that some international and domestic upside inflation risks have materialized or are materializing, and inflation may therefore be higher than the central bank's August baseline scenario. The remarks came less than a week before the RBA's policy meeting, heightening market attention to a further rate hike. Data released the same day showed Australia's CPI accelerated to 3.7% year on year last quarter, faster than the previous three months and above the 3.6% median estimate, further reinforcing signals that inflationary pressure remains uncontrolled. In her opening statement, Bullock said: "Some international and domestic upside inflation risks have materialized or are materializing." "As a result, inflation may be higher than our August baseline scenario." Immediately after she delivered the statement, data showed inflation accelerated to 3.7% year on year last quarter, not only faster than the previous three months but also above the market median estimate of 3.6%. This means the RBA may have underestimated price pressure in its August forecasts, raising the likelihood that next week's meeting will discuss a further rate hike. The RBA raised borrowing costs last month to a 15-year high of 4.6%, its fourth hike this year. Inflation remains above the upper bound of the RBA's target range, showing the central bank faces persistent challenges on price pressure. The original text noted that these pressures existed even before the US-Israel attacks on Iran triggered a global energy shock, meaning the energy shock could further compound existing inflationary pressures. Senior RBA officials including Deputy Governor Andrew Hauser and Assistant Governor Sarah Hunter also attended the hearing. Over the past 10 days, both have sent hawkish signals to the market, with Hauser saying the inflation outlook has "deteriorated markedly" compared with the RBA's August forecasts. Bullock stressed in her opening statement: "It is important for the economy that inflation does not deviate from target for too long," otherwise the risk is that inflation becomes embedded in inflation expectations and is further passed through to price- and wage-setting decisions. Overall, Australia's upside inflation risks are shifting from warning to data reality, and the RBA faces stronger pressure to raise rates further at next week's policy meeting. In the near term, focus on three points: first, whether the RBA raises rates again next week and the wording of its statement; second, the subsequent pass-through of CPI and energy prices to core inflation; third, whether there are signs of de-anchoring in inflation expectations, wages and pricing behavior. If inflation continues to exceed the upper bound of the target range, the probability that the RBA maintains or even intensifies tightening will rise. If subsequent inflation data ease, the impact of the energy shock weakens, or the labor market cools markedly, the RBA's rate-hike pressure may ease; conversely, if inflation expectations become de-anchored or the risk of a wage-price spiral rises, policy tightening may exceed expectations.