Developments over the last month or so indicate that some upside risks to inflation are materializing despite slowing growth in the Australian economy, Reserve Bank of Australia (RBA) Governor Michele Bullock said Friday.

Global cost pressures have increased, with little sign of a resolution of the Middle East conflict, as the artificial intelligence boom and extreme weather events exert upward pressure on a range of energy, agricultural, and technology-related prices, Bullock said in an opening statement to the House of Representatives' standing committee on economics.

Oil and related prices have surged again, and many domestic firms are passing on higher input costs, as expected. If these effects become embedded into price and wage-setting decisions, inflation could prove to be more persistent and warrant "a stronger policy response," the governor said.

Heading into the central bank's next monetary policy meeting later in September, a key question for board members will be whether the 75 basis points of cumulative tightening so far this year is sufficient to bring inflation back to the target range within a reasonable period of time.

Bullock appeared to hint at a possible interest rate hike at the upcoming meeting, saying that many other central banks are responding to the global inflation shock by raising policy rates or signaling an intent to do so if required.

On Wednesday, the US Federal Reserve increased its target range on the overnight funds rate by a quarter percentage point to 3.75% to 4% from 3.5% to 3.75%, with policymakers unanimously voting in favor of the Fed's first rate hike since 2023.

"I recognize that higher interest rates are difficult for Australians with mortgages who are also facing cost-of-living pressures," Bullock said. "But reducing inflation is essential."