Australia's central bank chief warns inflation risks appear to be materialising

SYDNEY: Australia's top central banker said on Friday some of the upside risks to inflation flagged by policymakers appeared to be materialising, with the Middle East conflict and the artificial intelligence boom putting upward pressure on prices.

Appearing before lawmakers, Michele Bullock, governor of the Reserve Bank of Australia (RBA), said a key question facing policymakers at its policy meeting this month would be whether three rate hikes this year would be sufficient to bring inflation back to target in a reasonable time.

The RBA held interest rates steady at 4.35 per cent for a second meeting in August, but it singled out the Middle East war and a global data centre investment boom as key risks to inflation. Both have since moved in an inflationary direction.

"Developments since then suggest that although growth in the Australian economy is slowing, some of these upside risks to inflation appear to be materialising," said Bullock.

She added the economy was slowing down as expected, but the labour market remains tight, warning a period of subdued growth in aggregate demand is needed to bring inflation down.

Markets imply a 93 per cent chance the RBA will lift rates for a fourth time this year to 4.6 per cent when it meets on Sept 28 to 29, and reach 4.85 per cent by early 2027.