RBA In “Good Position” To Return Inflation To Target As Expected

RBA Governor Bullock has appeared before the Senate economics committee and few questions from senators were centred around monetary policy and the outlook for the economy. But she said that the RBA is in a “good position” to return inflation to target within a reasonable timeframe but there continue to be significant uncertainties.

• Bullock said that the central bank is watching growth and inflation developments overseas closely. She said that global inflation impacts Australia through import prices and so the significant decline seen in other countries has helped bring domestic goods prices down. But services inflation remains elevated and we’re seeing that here too and the central bank is watching this closely for any implications in Australia. She said that persistent services inflation is delaying the return to target.
• Risks that inflation expectations become unanchored remain the longer that inflation is above 3%.
• The inflation forecast difference between the RBA and Treasury is not material and Bullock reiterated that the further out a projection is the greater the uncertainty.
• The RBA expects rents to peak around 10% in the next quarter or two and Bullock emphasised that supply and demand are the fundamental issue around the cost of housing. There are signs that advertised rents have peaked.
• She reiterated that the November hike wasn’t a mistake as aggregate demand continued to exceed supply.