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By James Glynn
SYDNEY–Inflation pressures across Australia’s economy are now expected to ease more gradually than thought just three months ago, said Marion Kohler, acting chief economist at the Reserve Bank of Australia.
“Domestically sourced inflation, in particular, services price inflation, has been widespread and slow to decline,” she said in a speech to a conference of financial market participants. “Still-strong levels of demand have allowed businesses to pass on cost increases to customers.”
Kohler’s remarks follow the RBA’s decision last week to raise the official cash rate by 25 basis points to 4.35%, and revise up its outlook for inflation over the next year.
Wages growth has also picked up over the past year, but now appears to have broadly stabilized and is forecast to decline gradually over the next couple of years as the job market weakens, Kohler said.
Still, the RBA’s forecasts assume that productivity growth will soon recover to around its pre-pandemic trend, but so far there are few signs of that.
Nevertheless, the RBA forecasts that inflation will be a little below 3.0% at the end of 2025, consistent with its target, Kohler added.
A recent increase in fuel prices is also a timely reminder that upside surprises from supply shocks could affect headline inflation.
“The road ahead could be bumpy,” Kohler said.
Write to James Glynn at [email protected]
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