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MNI INTERVIEW: No 'Spiralling' Inflation-RBA's Harper

MNI (Sydney)
SYDNEY (MNI)

Both surveys of consumers and financial market pricing indicate that inflation expectations remain within the Reserve Bank of Australia’s 2%-3% target range while a weakening housing market should dampen future price increases, RBA board member Ian Harper told MNI.

“At this point, neither measure indicates that inflation expectations have broken free of their longer-term anchor inside the RBA’s target range. This also explains why the inflation forecasts do not show inflation spiralling upwards,” Harper said in an interview on Thursday, speaking in a private capacity.

“As house prices fall, this will drag on consumption and add to the moderating influence on future inflation of interest rate rises and the rising cost of living,” he added.

Faced with underlying inflation at 3.6% and CPI inflation of 5.1%, the RBA raised interest rates this month for the first time in a decade, hiking by 25 basis points to 0.35%, (See: MNI STATE OF PLAY: RBA Could Take Rates To 2.5%, Says Lowe).

The RBA’s May Statement on Monetary Policy forecasts underlying inflation to peak at 4.6% by the end of 2022 and to fall to 2.9% - and back inside the RBA target range – by June 2024.

CPI Inflation is forecast to peak at 5.9% in June and fall to 2.9% by June 2024 as the cost of energy is expected to taper.

FOCUS ON WAGES

On wages, a key issue in the Federal Election won by the Labor Party on the weekend, Harper said the upcoming decision by the Fair Work Commission on the Federal Minimum Wage decision would be “especially important” to set a floor for pay increases across the economy.

During the election campaign, new Prime Minister Anthony Albanese committed to supporting wage increases equivalent to inflation, and his government is expected to recommend this to the Commission.

RBA forecasts see wages growth at 3.7% by June 2024, outpacing inflation for the first time in several years.

Harper said this would not add fuel to inflation so long as productivity was “growing at least as fast as real wages.”

Asked if he saw downside risks in the medium term, Harper said the strength of the labour market and the outlook for public spending, including plans announced by the new government, made a recession “highly unlikely.”

MNI Sydney Bureau | +61-405-322-399 | lachlan.colquhoun.ext@marketnews.com
MNI Sydney Bureau | +61-405-322-399 | lachlan.colquhoun.ext@marketnews.com

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