Australia is facing a potentially alarming economic trend not experienced since the 1970s, according to one of the country’s leading economists.

During a recent address in New York, Andrew Hauser, Deputy Governor of the Reserve Bank of Australia (RBA), cautioned about stagflation—a complex economic issue he termed as a “central banker’s nightmare.”

To understand the implications of stagflation for Australians, it’s crucial to delve into its nuances and potential impacts.

The RBA is anticipated to increase the cash rate for the third consecutive month during its May meeting, as part of ongoing efforts to curb escalating inflation.

The most hopeful scenario for the RBA would be a swift resolution to the current geopolitical conflicts, leading to a decline in oil prices.

However, even if peace negotiations conclude by June, Deloitte’s analysis for the Australian Financial Review suggests Australia’s economic growth could shrink by over half to just 0.7 percent, with unemployment potentially rising above 5 percent for the first time since 2021.

But, Hauser noted, navigating economic challenges is how central bankers make a living.

“You know, the stagflationary shock: inflation up, activity down. Judging the balance between those two is, I guess, how we earn our money,” he said.