Inflation above 3 percent—let's be clear, it's too high.
Australia's central bank finds itself in the familiar tension between patience and urgency, as a modest easing of inflation offers hope without resolution. Deputy Governor Andrew Hauser acknowledged November's decline to 3.4 percent as expected progress, yet reminded the public that progress and arrival are not the same thing — the Reserve Bank's target remains unmet. With the possibility of rate increases still openly on the table, the RBA stands at a crossroads that will shape the financial lives of households and businesses across the country. The full story, it seems, will not be told until the fourth-quarter data arrives later this month.
- Inflation at 3.4% may be falling, but it remains above the RBA's 2–3% target — and the central bank is not pretending otherwise.
- The RBA's December warning that rates could rise from 3.6% has injected real anxiety into markets and households already stretched by borrowing costs.
- Underlying inflation, which strips out volatile items, barely moved — dropping only from 3.3% to 3.2% — signaling that the deeper price pressures have not yet broken.
- The board is deliberately holding its position, refusing to act on a single month's data and waiting for the complete fourth-quarter picture before any policy shift.
- The coming weeks carry unusual weight: if Q4 data disappoints, Australians could face the unwelcome reversal of rate hikes after a period of cuts.
Australia's inflation challenge is far from over, according to Reserve Bank Deputy Governor Andrew Hauser. Speaking on Thursday, he acknowledged November's drop in inflation — from 3.8 percent to 3.4 percent — as a step forward, but stopped well short of declaring the problem solved. The slowdown was largely anticipated, he said, and the more important truth is that inflation still sits above the RBA's 2–3 percent target band.
The bank's preferred underlying measure, which filters out volatile items like fuel and fresh food, barely shifted — falling from 3.3 to 3.2 percent. Hauser was direct: "Inflation above 3 percent — let's be clear, it's too high." The gap between where prices are and where they need to be remains wide enough to keep the central bank on alert.
What gives this moment its edge is a warning the RBA's board issued in December: if inflation fails to cool, interest rates may need to rise from their current 3.6 percent. That would reverse a period of cuts and tighten conditions for households and businesses already under financial pressure. The warning followed a third-quarter acceleration in inflation that unsettled the board.
Hauser was careful to signal that no decision is imminent. The board intends to review the full fourth-quarter inflation data, due later this month, before acting. One encouraging monthly reading is not sufficient to change course — the RBA will weigh employment, wages, spending, and global conditions alongside the price data. For now, the central bank is watching closely, but the threat of higher rates has not gone away.
Australia's inflation problem is not solved, according to the Reserve Bank's second-in-command. On Thursday, Deputy Governor Andrew Hauser acknowledged that November's inflation reading—a drop to 3.4 percent from 3.8 percent the month before—was a step in the right direction. But he was careful not to declare victory. The slowdown, he said, was largely what the central bank had anticipated, and more importantly, inflation remains stubbornly above where it needs to be.
The RBA's mandate is clear: keep inflation between 2 and 3 percent, with an ideal target of 2.5 percent. Right now, the economy is failing that test. The bank's preferred measure of underlying inflation, which strips out volatile items like fuel and fresh food, sat at 3.2 percent in November, down only marginally from 3.3 percent in October. Hauser was blunt about the gap. "Inflation above 3 percent—let's be clear, it's too high," he told the Australian Broadcasting Corporation. The central bank is not satisfied, and the public should understand that.
What makes this moment significant is the threat that hangs over the economy. In December, the RBA's board issued a warning that caught market attention: if inflation does not cool, interest rates might have to rise from their current level of 3.6 percent. That would be a reversal after a period of rate cuts, and it would make borrowing more expensive for households and businesses already feeling the squeeze. The board had watched inflation accelerate during the third quarter, which prompted the cautionary signal.
But Hauser made clear that the central bank is not rushing to judgment. The board will wait to see the full picture of fourth-quarter inflation data, due later this month, before making any moves. A single monthly report, even one that shows improvement, is not enough to change course. The RBA will weigh the entire economic landscape—employment, wage growth, consumer spending, global conditions—before deciding whether the inflation problem has truly turned a corner or whether tighter monetary policy is necessary.
The deputy governor's measured tone reflects the uncertainty that still surrounds Australia's inflation trajectory. November's slowdown is real, but it is also modest. The gap between where inflation is and where it needs to be remains substantial enough that the central bank cannot afford to relax. The coming weeks will be crucial. When the full fourth-quarter data arrives, the board will have to decide whether the trend is genuinely improving or whether the economy needs the shock of higher interest rates to bring prices under control. For now, the RBA is watching and waiting—but the threat of rate increases remains very much on the table.
Citações Notáveis
Most of those numbers were broadly in line with our expectations— Andrew Hauser, RBA Deputy Governor
Inflation above 3 percent—let's be clear, it's too high. We wish to keep inflation between 2 and 3 percent, that is currently above that.— Andrew Hauser, RBA Deputy Governor
A Conversa do Hearth Outra perspectiva sobre a história
Why does the RBA care so much about that 2-to-3 percent target? Why not just let inflation come down on its own?
Because inflation above 3 percent erodes people's savings and wages. If you're earning 5 percent more but prices are rising 4 percent, you're actually worse off. The RBA's job is to anchor expectations—to make sure people and businesses believe inflation will stay low, so they don't start demanding higher wages or raising prices preemptively, which would spiral the problem.
So Hauser saying the slowdown was "expected"—that sounds like he's downplaying good news. Why?
He's not downplaying it. He's being honest. If the slowdown was expected, it means the RBA's models are working. But it also means there's no surprise to celebrate. The real question is whether inflation keeps falling or stalls out. One month of improvement doesn't prove the trend.
The board warned about raising rates in December. Does that mean they're definitely going to do it?
Not necessarily. It's a conditional warning. They're saying: if inflation doesn't cool, we'll raise rates. But they're also saying they'll look at the full quarter of data before deciding. It's a way of signaling to the market and to households that they're serious about the target, without committing to a specific action yet.
What happens to ordinary Australians if rates do go up?
Mortgage payments get more expensive. If you're borrowing to buy a house or a car, your monthly costs rise. Savings accounts pay more interest, which is good for savers but bad for borrowers. The RBA is essentially trying to cool demand by making money more expensive to borrow, which slows spending and, theoretically, brings inflation down.
So Hauser is basically saying: we're watching, we're not panicking, but we're ready to act?
Exactly. He's trying to keep the door open without slamming it shut. The RBA wants to avoid surprising the market or the public, but it also wants to keep the threat of rate hikes real enough that people and businesses take inflation seriously.