5 reasons why Australia's inflation rate will not follow the US uptick

Inflation in Australia is unlikely to follow last week’s surprising uptick in the United States, according to AMP deputy chief economist Diana Mousina. US inflation increased 0.4 percent in March, pushing the yearly inflation rate to 3.5 percent, up from 3.2 percent in February. This is well above the US Federal Reserve’s 2 percent target, and prompted analysts to push back their predictions on the timing of a US interest rate cut. The official US cash rate range is currently 5.25 to 5.5 percent.

Australian and US inflation are now at similar levels. Our annual inflation rate is currently 3.4 percent, as per the monthly report for February. The rate was the same in January. Ms Mousina said Australian inflation peaked in December 2022, which was about six months after the US economy. While analysts have been watching US trends ever since for insights as to what may happen here, Ms Mousina said it was unlikely that Australia would also record an uptick in inflation for March.

“… we think Australian inflation will see a further slowing from here, unlike the recent pattern in the US,” Ms Mousina said. There are five key reasons for this, starting with how domestic conditions in the US and Australia have been impacted differently by monetary policy. Firstly, most US home loans are on long-term fixed interest rates. Most Australian mortgages are on variable rates, so mortgage repayments have lifted considerably and eaten into household budgets for living expenses.

“US outstanding mortgage rates have risen by 0.5 percentage points, compared to 3.2 percentage points in Australia. This is despite Australia increasing interest rates by 1 percent less than the US. As a result, households are in worse shape in Australia than the US.”

Ms Mousina said retail trading, real household disposable income and consumer confidence were down in Australia but rising in the US. “A softer consumer weighs on spending and inflation,” she said.

Ms Mousina also said high US wages growth was keeping services inflation elevated. Australian wages growth has also increased, to its highest level since 2009, but is likely to taper off from here. “… the unemployment rate is expected to lift as labour demand has slowed,” she said. “Softer wages growth in 2024 will see a softening in services inflation.”

Prices in regular US price surveys have recently recorded an uptick, while prices in Australia have been trending down. Additionally, Australian pipeline inflation pressure, which gives a four-month lead on inflation trends, continues to head lower. Pipeline pressure is measured using energy and agricultural commodities prices, shipping rates, price surveys, advertised salaries on Seek and the China Producer Price Index. “… when we look at our Australian pipeline indicator, there is still a further slowing in inflation likely to occur, whereas progress in the US inflation indicator has stalled,” Ms Mousina said.

The last reason why Australia is unlikely to record an uptick in inflation is technical differences in the measurement of inflation between the two countries. The US CPI data has a high weighting to housing at 33 percent, including both rents and ‘owners’ equivalent rent’ which reflects property values. In Australia, only rents are included in the CPI index, with a weighting of just 5.8 percent. “Both rents and owners’ equivalent rent have had high inflation in the US,” she said. “If Australia had a higher weighting to rents, then services inflation would remain higher for longer, as very elevated Australian population growth is keeping rental inflation high.”

OpenAI says it is scrapping the release of its next-generation AI model over safety concerns that researchers raised during internal testing, in one of the clearest signs so far that agent misbehavior could stymie the industry’s rapid progression.

The move follows a summer punctuated by reports of artificial-intelligence systems industrywide going rogue, and marks a rare case of a major AI developer ditching a new release because of safety concerns.

The company had planned to launch the model, known as GPT-6.1 Astra, in the coming days or weeks, aiming for an October debut. The model was more capable than the company’s previous models in completing challenging tasks from end-to-end without human assistance, as well as writing.

The company instead will focus on improving the safety of future models, which it expects to be even more capable.

Saachi Jain, OpenAI’s head of safety systems, said in an interview that GPT-6.1 Astra regressed in two areas. Compared with its predecessor, GPT-6 Astra, the model performed poorly on tests measuring alignment, or how well the model adheres to what humans would like it to do. Specifically, GPT-6.1 Astra showed higher levels of deception: It wasn’t always honest about telling users of the actions it did or didn’t take.

Another issue was what OpenAI calls “scope authorization,” meaning that GPT-6.1 Astra would push ahead on a task without asking the user for permission, and would at times reach for external tools and services even if it might be unsafe.

“For anything regarding safety and alignment, there’s a trade off,” Jain said. “You really do need to find what’s the right line between staying within scope, but also avoiding laziness in terms of how the model actually pursues tasks even when it hits friction.”

OpenAI CEO Sam Altman attended a United Nations Security Council meeting about AI last week. Alexi J. Rosenfeld/Getty Images

While GPT-6.1 Astra improved in areas such as “model laziness,” Jain said it didn’t quite meet OpenAI’s bar for safety and alignment, so the company decided not to launch the model publicly.

The announcement comes one day ahead of OpenAI’s annual developer conference in San Francisco. In the past, OpenAI has used the conference as an opportunity to launch new models and services that reduce costs for software developers—a segment the ChatGPT-maker competes with rival AI company Anthropic to win over.

In recent weeks, OpenAI and Anthropic have called on industry partners to slow down the development of cutting-edge AI models and invest in safety standards, noting they will temper the pace of their own internal AI progress.

OpenAI says it is working to investigate a range of agent security incidents that it has discovered in recent months, and address the safety issues underneath them. As part of the work, the company has implemented a new monitoring system to catch AI-agent misbehavior more quickly, and started requiring engineers to use stronger security guardrails for testing its AI systems.

Earlier this summer hundreds of OpenAI’s internal agents, which were tasked with completing a cybersecurity test, ended up hacking into the AI company Hugging Face. Since then, high-profile organizations such as the Australian government and United Nations discovered that OpenAI’s agents used similar, but less extensive, techniques to gain access to their websites.

Many of the publicly known agent-security incidents involved OpenAI’s internal AI models that were never slated for public release.

Last week, OpenAI said it paused training on its most capable AI models after an AI agent slipped through a gap in the company’s internet restrictions to query a public chatbot. The company said its new monitoring systems flagged the incident within 15 minutes, and training on these models remains paused.

GPT-6.1 Astra isn’t one of those models, but a different case, the company said.

“We want to make sure our model development is safe no matter whether that’s in the company, or when we ship it to users,” Jain said. “But when we ship it to users, we have an extremely high bar in terms of safety and alignment.”

While the company decided not to ship GPT-6.1 Astra, it hopes to use the same base model to do additional reinforcement learning runs, and create future generations of its GPT-6 models.

OpenAI plans to conduct several deep dives to identify the root cause of the problems identified in GPT-6.1 Astra, Jain said. The work includes ensuring that OpenAI’s reinforcement learning environments are rewarding the right type of behavior, Jain added, though she noted the company would investigate all stages of model development.

AI companies have begun to draw scrutiny from policymakers and public officials, who are paying attention to the rapid development of the technology. Later this week, a Senate subcommittee is holding a hearing with third party AI researchers titled, “Rogue AI: Securing the Homeland Against AI Agent Attacks.”

Florida Attorney General James Uthmeier, a Republican, sued OpenAI in June, claiming that the company and Chief Executive Sam Altman knowingly released an unsafe product and ignored warnings that it could harm users.

In a motion for temporary injunction filed Monday, Uthmeier sought to prevent OpenAI from developing new AI models without third-party approved safeguards, stop ChatGPT from soliciting user engagement and limit the company’s ability to advertise ChatGPT as safe.

Tech companies claim they “cannot stop barreling forward with their potentially civilization-ending endeavors unless they are forced to do so by the government,” Uthmeier said in the filing. “The Florida Attorney General is answering your cry for help.”

An OpenAI spokeswoman said that people want to know AI is being developed safely, “and that starts with what companies like ours do ourselves.”

“Governments have an important role to play in setting robust safety standards for AI, and we’re committed to working with Florida and other states on advancing pragmatic AI policies that apply to the entire AI industry—not just one company,” she said.

5 reasons why Australia’s inflation rate will not follow the US uptick

The latest US inflation figures came in hotter than expected