RBA chief economist warns of more frequent supply shocks

Global supply shocks are occurring with increasing frequency, compelling central banks like the Reserve Bank of Australia (RBA) to repeatedly adjust policy in response to a "new reality," according to RBA chief economist Sarah Hunter.

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These sharp adverse supply shocks have become more frequent, meaning the Monetary Policy Board and the RBA have had to navigate the policy trade-offs repeatedly.

Hunter explained that these "sharp adverse supply shocks have become more frequent," necessitating constant navigation of policy trade-offs. She cited escalating geopolitical tensions, trade fragmentation, and the growing prevalence of extreme climate events as key drivers. Consequently, the RBA and the broader economy may face these trade-offs and their associated costs more often in the coming years.

In response, the RBA is significantly investing in "knowledge, people and frameworks" to better manage these complexities. This includes launching new initiatives to enhance engagement with the economics and policy community, strengthening ties with academia and think tanks to test its thinking and incorporate cutting-edge knowledge. The RBA's 2026 Annual Conference will also focus on the topic of trade-offs, bringing together international experts.

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And we could see this continue going forward; economic spill-overs from rising geopolitical tensions, trade fragmentation, and the increasing prevalence of extreme climate events are just some of the shocks we are now experiencing.

Hunter's comments were made in Canberra, hours after news broke of fresh U.S. missile strikes against Iran, highlighting the ongoing threat to shipping traffic through the Strait of Hormuz. She noted that while conventional wisdom suggests looking past short-term supply shocks, persistent inflation driven by more persistent shocks could necessitate interest rate hikes.

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To help us navigate through these complexities, the RBA is investing in our knowledge, people and frameworks.