Stagflation is a 'central banker's nightmare', says RBA deputy governor

Lead

Reserve Bank of Australia (RBA) deputy governor Andrew Hauser has labelled the country's current economic predicament a "central banker's nightmare," warning of a "big income shock" as inflation rises while economic growth falters. His remarks, made in New York, come as separate warnings from two respected Australian economists point to the risk — or even the onset — of stagflation, a toxic combination of stagnant growth and high inflation.

Coverage Comparison

Three outlets covered the story: two articles from Australia's public broadcaster, ABC Australia, and one from UK-based The Guardian. All three focused on Hauser's statement. One ABC article and The Guardian both quoted Hauser directly, describing the "stagflationary shock" as a "central banker's nightmare." The other ABC article shifted its focus to two economists — Professor Bob Gregory, a former RBA board member, and Dr Martin Parkinson, a former Treasury Secretary — who have separately warned about stagflation in recent weeks.

While the ABC's first article centred on Hauser's warning and the upcoming "big income shock," the second piece gave weight to the economists' perspectives, arguing that stagflation may already be occurring. The Guardian's report highlighted the collapse in Australian consumer confidence, citing a Westpac survey that showed the sharpest drop since the Covid pandemic.

Despite the different angles, all three outlets agreed on the fundamental causal chain: the war in the Middle East has disrupted global energy supplies, pushing up oil prices and feeding inflation, while simultaneously threatening economic activity. The tone across the coverage was largely neutral, with direct quotes from officials and economists carrying most of the narrative.

Key Claims

The central claim — reported by all three sources — is that Andrew Hauser, the RBA's deputy governor, described stagflation as a "central banker's nightmare." Speaking at an event in New York, Hauser said the central bank was "judging the balance" between the damage from soaring fuel prices and a sharp rise in inflation, according to both The Guardian and ABC.

Hauser also warned that Australia will soon experience a "big income shock" because of the war in the Middle East, a claim carried by ABC. He was quoted as saying that inflation will head higher in the short term, and that the RBA's key question is how the energy shock will affect economic activity and inflation over the next two to three years.

Multiple sources confirmed that consumer confidence in Australia has declined significantly. The Guardian cited a Westpac survey showing a 13% fall in the confidence index to 80 points, near all-time lows seen during the initial Covid onset and the early 1990s recession. ABC reports also noted the decline.

On the economic diagnosis, two prominent Australian economists — Professor Bob Gregory and Dr Martin Parkinson — have separately warned about stagflation. According to ABC, Gregory, who served on the RBA board from 1985 to 1995, believes stagflation is already happening in Australia, saying "I think it will happen and it is happening." Parkinson, a former Treasury Secretary, was quoted as saying there is a "real risk" of stagflation, though he does not think it is fully here yet. Both point to the global oil crisis as the root cause.

All sources agree on the underlying economic conditions: inflation is rising while growth is weakening and unemployment is climbing. This is the classic definition of stagflation, and all three outlets explained it in similar terms.

Perspectives

RBA viewpoint: Andrew Hauser acknowledged the difficulty of the situation, saying that central banks have little power to stop inflation rising in the short term. He stressed that the RBA's job is to "judge the balance" between inflation and economic activity, a delicate act given that interest rate moves to address one can worsen the other.

Economists' warning: Professor Gregory and Dr Martin Parkinson, both highly respected in Australian economic policy circles, have issued stark warnings. Gregory believes stagflation is already emerging, while Parkinson sees a real risk. They both attribute the problem to the global oil crisis triggered by the Middle East war.

Consumer confidence: The Westpac survey, cited by The Guardian, reveals that Australian households are feeling the pressure. Senior Westpac economist Matthew Hassan said Australians are "being hit by another cost of living shock" as mortgage payments and fuel prices rise simultaneously, pushing finances "under intense pressure."

Historical context: All outlets drew parallels to the 1970s oil shocks, when stagflation last struck many economies, including Australia. However, Hauser and the economists noted that today's circumstances are different, with the current oil price increase likely to be less persistent.

Corrections and Updates

No corrections or updates have been reported by the sources. The coverage is based on recent statements and surveys, and all quotes have been attributed to their original speakers.