Rba: Inflation is proving more stubborn than initially expected
A senior Reserve Bank of Australia (RBA) official said Australian inflation was proving more stubborn than first thought, largely due to price pressures in the services sector, and bringing it down would be a long process.
Rba acting Assistant Governor Mark Cohler expects inflation to still fall, but does not expect it to reach the upper end of the RBA's target band of 2 to 3 percent until late 2025.
"We now expect inflation to decline more slowly than we previously thought, given the still-high level of domestic demand and labor and other cost pressures," she said. There is also a risk that higher inflation will affect wage - and price-setting behaviour and therefore require more stringent policy responses."
The Reserve Bank of Australia last week raised interest rates by 25 basis points to a 12-year high of 4.35 percent amid concerns that inflation was not fading fast enough. The market is implying about a 50% chance that the RBA will raise rates again sometime in the first half of next year.
Inflation has slowed as a result of falling commodity prices, but domestically incurred costs continue to rise, Kohler said. Kohler said still-strong demand has allowed companies to pass on higher costs to customers. Wage growth also picked up over the past year, but now appears to have roughly stabilized and is expected to decline gradually over the next few years.
Strong public and business investment has supported economic activity, while a rapid rebound in student and tourist numbers has contributed to strong growth in overall domestic consumer spending, she said.
She added: "Economic growth is expected to remain below trend in the year ahead. This is mainly due to weak growth in household consumption, as cost-of-living pressures, rising interest rates and higher taxes payable will continue to weigh on disposable income for some time."
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