MNI BRIEF: Services Inflation Remains High - RBA's Kohler
Australian services price inflation remains high and broadly based, despite goods-price falls, and will continue to add pressure while the level of demand exceeds supply, said Marion Kohler, head of economic analysis department at the Reserve Bank of Australia.
Speaking at an industry conference, Kohler noted firms continued to face pressure from higher labour and non-labour costs like professional services, logistics and insurance. “We are forecasting that services inflation will decline from here, but only gradually as demand moves into better balance with supply and domestic cost pressures moderate.”
The RBA held the cash rate steady at 4.35% last week. MNI has reported the strong fall in goods-price inflation could lead the RBA to cut the cash rate by mid-year. (See MNI INTERVIEW: RBA To Cut By June - Ex-staffer)
Kohler added wage growth has likely peaked and will decline gradually in line with the easing labour market. (See chart) “We’re already seeing signs of easing wage pressures in some industries, particularly in business services,” she added. Labour productivity, an important input into labour costs, should also return to pre-pandemic levels over the next few years, she explained.