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RBA: Risks Balanced, Inflation To Return To Target “Gradually”

RBA
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RBA Governor Bullock stated that bringing inflation down the last part of the way is “not easy” and that there are still upside risks to inflation, including continued weak productivity growth, tight labour market and the level of demand still exceeding supply. Overall, the risks remain balanced and so the Board is not “ruling anything in or out”. 

  • The Board’s discussion was structured as it was in September with it asking if policy was “restrictive enough” to return inflation to target within the “reasonable timeframe”. It found that it was. It again looked at scenarios that would drive rates to have to rise or fall rather than debating a move at the November meeting.
  • The Governor would not give rate guidance but said that the market OCR pricing was consistent with inflation not returning to target any time soon and its path “was as good as any”.
  • Bullock observed that if the quarterly rise in trimmed mean CPI doesn’t moderate from Q3’s 0.8% q/q then it will not return to target. Over recent quarters it has been quite stable and is expected to decline only gradually. 
  • Inflation can be quite “sticky” because it can take time to improve the supply side to meet demand. The unemployment rate is a good indicator of the size of this output gap and its stabilisation at a low level signals that demand is still above supply.
  • On the downside, the Board is prepared to act if the pickup in real income growth doesn’t result in the forecast consumption recovery and it surprises to the downside. It is the same with a sudden weak surprise to the labour market. But the RBA is not expecting job losses but rather a rise in unemployment driven by employment growth running below the labour force. 
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RBA Governor Bullock stated that bringing inflation down the last part of the way is “not easy” and that there are still upside risks to inflation, including continued weak productivity growth, tight labour market and the level of demand still exceeding supply. Overall, the risks remain balanced and so the Board is not “ruling anything in or out”. 

  • The Board’s discussion was structured as it was in September with it asking if policy was “restrictive enough” to return inflation to target within the “reasonable timeframe”. It found that it was. It again looked at scenarios that would drive rates to have to rise or fall rather than debating a move at the November meeting.
  • The Governor would not give rate guidance but said that the market OCR pricing was consistent with inflation not returning to target any time soon and its path “was as good as any”.
  • Bullock observed that if the quarterly rise in trimmed mean CPI doesn’t moderate from Q3’s 0.8% q/q then it will not return to target. Over recent quarters it has been quite stable and is expected to decline only gradually. 
  • Inflation can be quite “sticky” because it can take time to improve the supply side to meet demand. The unemployment rate is a good indicator of the size of this output gap and its stabilisation at a low level signals that demand is still above supply.
  • On the downside, the Board is prepared to act if the pickup in real income growth doesn’t result in the forecast consumption recovery and it surprises to the downside. It is the same with a sudden weak surprise to the labour market. But the RBA is not expecting job losses but rather a rise in unemployment driven by employment growth running below the labour force.