RBA Chief Warns of Growing Economic Instability as Oil Shocks Return

Reserve Bank Governor Michele Bullock has warned that the global economy is becoming increasingly vulnerable to supply shocks, with the latest surge in oil prices presenting fresh challenges for Australian monetary policy.

Speaking at a Sydney function on Tuesday, Ms Bullock flagged that recurring disruptions to supply chains and commodity markets were occurring against a backdrop of persistently weak productivity growth in Australia—a structural problem that threatens to constrain future economic expansion.

Productivity Crisis Limits Policy Options

The RBA governor described weak productivity growth as the "fundamental challenge" facing Australia's economy in the coming years. Without improvements in how efficiently businesses and workers produce goods and services, she warned, the nation cannot achieve strong economic growth without fuelling inflation.

"With continued weak productivity growth, Australia's economy would not be capable of growing strongly without putting upward pressure on inflation, and that would limit the choices of policymakers in the coming years," the Governor said.

This assessment highlights a critical constraint for Australian policymakers: the economy is caught between competing pressures. While the RBA has been attempting to bring inflation back within its 2-3 per cent target band through interest rate increases, underlying economic weakness and supply-side constraints threaten to keep inflation elevated even as consumer demand softens.

RBA Signals Readiness for Further Rate Hikes

Ms Bullock made clear that the central bank remains prepared to act decisively if needed. She told the gathering that the RBA was "prepared to act as required" to achieve its inflation target, "including by increasing the cash rate further if needed."

The statement comes as markets price in potential interest rate movements ahead of the board's next decision in a fortnight. The comments suggest that despite recent rate hikes, the RBA has not ruled out further tightening if inflation pressures persist or fresh supply shocks threaten to derail the price stability objective.

Global Uncertainty Reshapes Risk Landscape

The Governor's remarks reflect growing concerns among central banks worldwide about a more unstable international environment. Geopolitical tensions, climate-related disruptions, and fragmented supply chains have created what analysts describe as a "shock-prone" global economy—one less resilient to unexpected disruptions than in previous decades.

Oil price volatility has proven particularly problematic for central banks trying to manage inflation expectations. Energy costs feed through to transport, manufacturing, and household budgets, complicating efforts to distinguish between temporary price spikes and persistent inflationary pressures.

Productivity Stagnation Threatens Living Standards

Beyond immediate monetary policy concerns, the productivity issue strikes at the heart of Australia's long-term prosperity. For years, real wages and incomes have been squeezed by sluggish productivity gains, meaning workers are producing little more output per hour despite technological advancement.

Addressing this structural weakness requires action beyond the RBA's remit—including business investment, workforce training, and regulatory reform. Without improvement, Australia faces a future where growth comes at the cost of either higher inflation or lower living standards.

Originally published by ABC News