RBA: Expects inflation to decline in the next 18 months

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Australian central bank governor Philip Lowe expects the current high inflationary pressures to ease over the next 18 months, and that the central bank will raise interest rates when it is confident that inflation will not fall again.

Supply problems and unprecedented demand for goods will subside as consumer habits return to normal after the pandemic, away from services to consumer goods and housing, Lowe said.

Reiterating the view that markets are wrong to expect interest rates to rise in 2022, Lowe says this leaves wage growth as a key indicator of whether inflation is likely to be sustainable.

The Bank of Australia wants to see inflation stable at 2% -3% before raising interest rates from the current low of 0.1%.

Lowe said raising wages by 3% or more was not a goal of China’s central bank.

Instead, it is a guide to assessing whether inflation is sustainable in the context of relatively low unemployment.

“We have little historical experience of how Australia’s labor market works with an unemployment rate of 4%,” Lowe told economists.

Unemployment in Australia rose to 5.2% in October from 4.6% in September as the number of jobseekers increased as coronavirus lockdowns eased in the country’s most popular state.

The RBA expects the unemployment rate to fall to 4.75% by the end of 2021.

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Source From: Capital

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