Over the past month, a key measure of inflation expectations has jumped from 2.5% (the centre of the RBA’s target) to 2.7%. Inflation data released in October were higher than expected and so does this suggest financial markets think the RBA has lost control of inflation? 

That would be a concern for the RBA given the RBA’s statement of a low tolerance for a slower return of inflation to target. High and rising inflation expectations would risk being baked into wage setting and contracts making high inflation more persistent. The RBA would then need to raise interest rates further to engineer a sharper slowdown in economic activity. But while inflation expectations are too high, a broader range of inflation expectations are stable or even decreasing so we should be very alert but not yet deeply alarmed about inflation expectations becoming ‘de-anchored’.