Australia faces a difficult macro backdrop, with elevated inflation and limited supply capacity raising stagflation risks if energy shocks persist. In a fireside chat, RBA Deputy Governor Andrew Hauser warned of the “nightmare” scenario where inflation accelerates even as growth weakens, complicating policy choices. He noted inflation remains too high, while supply constraints limit the economy’s ability to absorb shocks. A key concern is surging energy prices tied to the Middle East conflict, which Hauser described as a major income shock. Rising costs are eroding household purchasing power and lifting business expenses, threatening growth. At the same time, the RBA is focused on anchoring inflation expectations, cautioning that second-round effects could entrench price pressures. This mix of weak growth risks and persistent inflation leaves the central bank with little scope to ease, reinforcing the need to keep policy restrictive.
