Analysis: Deutsche Bank’s chief economist Phil O’Donaghoe believes recent shifts in the rhetoric of Reserve Bank Governor Philip Lowe show he is already priming Australians for a hawkish turn in monetary policy as inflationary pressure builds in the economy. While O’Donaghoe suspects Lowe is not yet convinced that recent spikes in consumer prices are bound to be persistent, evidence has surfaced in the last week that the threat of protracted inflation has already induced material changes in the behaviour of key economic actors. The most significant evidence is detectable in the labour market where unions in the construction, manufacturing and the financial services sectors are starting to agitate for pay rises tied to movements in the Consumer Price Index. The decision by the Finance Sector Union to put a revised pay claim to Bankwest management  - almost four months after enterprise talks began - is an apt demonstration of how a new “inflation psychology” seems to be driving a strategic rethink among union leaders negotiating new multi-year industrial agreements. How unions such as the FSU respond to the inflation threat looms as a key factor in reversing the RBA’s approach to monetary policy and the timing of official rate increases.  As O’Donaghoe highlighted in a research report published on Wednesday, Lowe and his army of economists are keeping a watch on behavioural change in the labour market. In the governor’s three most recent public appearances, he stressed that before the RBA raises rates it will monitor labour markets for evidence of what he describes as “inflation psychology”. There were six references to “inflation psychology” in a speech the governor gave to an Australian Bankers Association conference on 11 March. “…We can't be sure about the inflation psychology,” Lowe told the ABA conference.“ If that shifts then understandably workers would want bigger compensation for higher inflation and firms might be prepared to pay a higher wage." And at a press conference on Tuesday, Lowe rolled out similar rhetoric: "The other psychology that we are looking at here is in the labour market...at the moment, workers are not getting bigger pay increases because inflation is higher … will that be the case in six months’ time? “I don't know … we are starting to see stories in the newspaper about workers demanding six per cent pay rises… so there is something going on there.  “How pervasive it is, we don't know yet.  “And until we see the evidence, we're not going to respond to it." Given the commentary from FSU national secretary Julia Angrisano in this morning’s edition of Banking Day, few behavioural economists could doubt that “inflation psychology” will shape pay claims in the banking sector for most of this year.