RBA's Bullock: Supply Shocks Hard for Policy, Flags Second-Round Risk

The image shows the Kiwi getting a lift from Reserve Bank of New Zealand Governor Breman earlier:

• RBNZ's Breman says higher oil prices point to firmer near-term inflation

Returning to Bullock ...

The two remarks released so far are narrow in scope, but they reinforce rather than alter the hawkish stance Bullock held before parliament last Friday, when she highlighted materialising upside inflation risks and noted a prevailing view that the neutral rate has increased. Her observation that supply shocks are tough for monetary policy to handle repeats a well-known central banking limitation, yet linking it to a focus on second round effects, where an initial price shock influences broader wage and price-setting behavior, indicates sustained attention to the kind of persistence that would justify further tightening. With the RBA's September 28-29 meeting a week away and a 25 basis point hike broadly anticipated, these initial remarks give markets little reason to change that outlook, though the fireside format means additional, more specific comments could still surface.

--- Bullock's first comments from today's fireside chat are brief, but they don't soften the hawkish stance she adopted last week.

Summary:

• RBA Governor Michele Bullock said supply shocks are difficult for monetary policy to manage.
• She stated that policy must address the second round effects of such shocks on inflation.
• These are the first comments from Bullock's fireside chat, with more remarks expected given the format.
• The comments align with the hawkish tone Bullock used in parliamentary testimony last Friday, when she pointed to materialising upside inflation risks and a rising neutral rate.
• AI boom adding to excess demand in Australia's economy.

Reserve Bank of Australia Governor Michele Bullock said supply shocks are tough for monetary policy to handle, and that policy must tackle the second round effects these shocks have on inflation, in early remarks from today's fireside chat appearance. So far, the comments are few, a trait of the less structured, conversational format, but they fit well within the hawkish stance Bullock has maintained in recent public appearances.

Bullock's remarks echo the position she laid out before a parliamentary committee last Friday, when she said the upside inflation risks flagged in August are now materialising and noted a general view among policymakers that the neutral interest rate has risen. Her focus today on second round effects, the process by which an initial cost shock, like higher oil prices, feeds into broader wage and price-setting decisions across the economy, matches the concern she raised last week that persistent shocks are hard to look through, and that businesses have become more willing to pass on higher costs to customers.

The remarks come a week before the RBA's September 28-29 meeting, where a 25 basis point increase from the current 4.35% cash rate is widely expected. Nothing in Bullock's remarks so far suggests a shift from that expected path, though the fireside format, being less scripted than a formal speech, means more comments may come as the appearance continues. Given the limited material so far, this piece will likely need updating as additional remarks arrive.