(Bloomberg) — Australia’s inflation is showing persistent strength and weighing heavily on the finances of some households, a senior Reserve Bank official said, highlighting the limits to further interest-rate increases.
“The board are absolutely focused on the fact that inflation is clearly still above the target band,” RBA Assistant Governor Sarah Hunter said at a conference in Sydney on Thursday, referring to the 2-3% goal. “Yesterday’s data did confirm that there’s still strength in a number of categories.”
April CPI on Wednesday came in faster than expected at 3.6%, suggesting price pressures remain stubbornly strong in the economy. The RBA has kept borrowing costs at a 12-year high of 4.35% for the past six months to try to rein in price gains.
“There are some households that are really struggling right now, they are doing it tough,” Hunter told the Australasian Investor Relations Association in a fireside chat, saying “inflationary pressures” are the key issue. “We’re very mindful of that.”
Reflecting sticky price gains, the central bank earlier this month said it wasn’t ruling anything in or out on policy moves. Still, it has also suggested that there would be a higher bar to further hikes.
While the consensus among economists is that the RBA is likely to begin an easing cycle in November, money markets don’t anticipate cuts until the second half of 2025.
Hunter also addressed the difference between the RBA’s latest quarterly estimates and Treasury’s budget forecasts, which showed lower inflation as the government distributes energy rebates to pull down power prices.
Treasury estimates CPI could reach 2.75% by year’s end, within the RBA’s target, while the central bank only sees that at the end of 2025.
“Broadly speaking, we agree with Treasury’s analysis of what’s going to happen to measured headline inflation as a result of those rebates,” Hunter said. “That will be incorporated in our next update in August. That’s not to say that’s mechanically what we’re going to do.”
Hunter, who is Governor Michele Bullock’s chief economist adviser, said the RBA is seeing signs that strength in pay gains is beginning to dissipate.
“We think that wages growth is near round about its peak and it’s actually coming off and we can see come components of wages growth coming off already particularly individual agreements. That’s starting to soften,” she said.
“We are very watchful of both wages and productivity as we look to advise the board when inflation can come back to target.”
More stories like this are available on bloomberg.com
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Published: 30 May 2024, 05:54 AM IST