Australia’s inflation outlook looks “materially worse” than the Reserve Bank predicted in its August forecast, Deputy Governor Andrew Hauser said, pointing to higher oil and technology prices as well as persistent domestic pressures.

“We’re seeing higher AI prices, tech prices feeding through into CPI,” Hauser said during a fireside chat on Wednesday, responding to a question about the prospects for a rate hike at the RBA’s policy meeting in early November. “And we’re having a boom in data center construction here in Australia as well. So that’s upside too, and then on domestic capacity pressure.”Oil prices are about a third higher than the RBA assumed in its August projection, with fewer fiscal interventions cushioning the impact on Australian consumers, he added.

Traders priced about a 43% chance of a rate hike at the end of the its two-day meeting on Nov. 3, up from about 30% prior to Hauser’s comments, according to swaps data compiled by Bloomberg. A 25 basis point rate hike is all but fully priced for February, brought forward from expectations it may occur in May, the data show.

The Australian dollar held above 70 US cents, while policy-sensitive three-year yields edged higher.

Hauser “sounds very uncomfortable about how Q3 inflation is shaping up,” said Sean Callow, a senior analyst at ITC Markets in Sydney. “Hauser may be again playing ‘bad cop’ in delivering a warning that another rate hike is looming.”Hauser’s remarks come less than two weeks before the bank meets to assess whether the economy is gradually returning to balance or whether further hikes are needed to contain inflation. Central to that assessment is third-quarter inflation data due next Wednesday, which is expected to show consumer prices aren’t returning to the RBA’s 2%-3% inflation target quickly enough. Hauser also warned about the risk that elevated inflation becomes embedded in expectations.

“The basic fact is that inflation has been high for a very long time now, and we are beginning to see some signs that some people in the community are not sure if we’re going to bring inflation back into target at all, or certainly not for an extended period,” he said. A growing share of firms are thinking that 3%-3.5% inflation is a new normal, he added, calling it “the central bank’s nightmare.”The RBA lifted interest rates in late September in a bid to curb accelerating prices, taking rates to the highest level in 15 years at 4.6%. Governor Michele Bullock’s comments after that decision were interpreted as somewhat dovish compared to the bank’s hawkish policy statement and meeting minutes.

Since then, higher unemployment has prompted traders to scale back rate-hike expectations. Hauser on Wednesday acknowledged the latest signs of weakness in the labor market, following comments from RBA Assistant Governor Christopher Kent earlier this week that the labor market was softening faster than expected.

“We obviously have a dual mandate,” Hauser said, laying out the choice between protecting the labor market and risking inflation becoming entrenched. “Those are hard choices. They’re not where we’d like to be ideally as the central bank. But I think that’s what we’re phasing into as we meet the week after next.”