MNI BRIEF: Strong Omicron Recovery to Fuel Inflation, Says RBA

A better than expected health outcome to the disruptions of the Omicron virus could see Australian inflation exceed the central forecast of 3.25% by mid-2022, according to the Reserve Bank of Australia’s upside scenario discussed at the last board meeting.

The mInutes of the RBA meeting, released on Tuesday, show that the while the bank’s central scenario is for underlying inflation to reach 3.25% this year before declining to around 2.75% over 2023, the upside scenario would see higher inflation and unemployment down to around 3%, see: MNI STATE OF PLAY: RBA Stays Firm On Cash Rate View, Drops QE.

Underlying inflation is currently running at 2.6% and is at the mid-way point of the RBA’s target range of 2% to 3% for the first time in seven years. RBA Governor Philip Lowe has said that while the bank does not expect conditions for a rate rise until 2024 or late 2023, there were scenarios under which a rate rise was “plausible” later this year.