RBA raises the alarm: Inflation risk is higher for longer

Reserve Bank of Australia Statement on Monetary Policy (SoMP).

  • Board’s priority is to return inflation to target
  • Considered whether
    to pause in Nov, decided a hike would provide more assurance on
  • In hiking, judged
    risk of inflation staying higher for longer had increased
  • Whether further
    tightening needed will depend on data, balance of risks
  • Inflation more
    persistent than expected, economy a bit stronger than expected
  • Potential for
    further upside surprises to inflation, from both domestic and
    external factors
  • Some measures of
    inflation expectations edging up, important to stop this
  • Board mindful that
    many households facing painful squeeze on budgets
  • RBA raises forecasts
    for inflation and GDP growth, trims unemployment and wage forecasts
  • Sees trimmed mean
    inflation at 4.5% end 2023, 3.25% end 2024, 3.0% end 2025
  • Sees CPI at 4.5% end
    2023, 3.5% end 2024, 3.0% end 2025
  • Sees wage growth at
    4.0% end 2023, 3.7% end 2024, 3.5% end 2025
  • Sees unemployment at
    3.75% end 2023, 4.25% end 2024, 4.25% end 2025
  • Sees GDP growth at
    1.5% end 2023, 2.0% end 2024, 2.25% end 2025
  • Forecasts assume
    cash rate peaks around 4.5% before declining to 3.5% by end 2025
  • Revises up
    population forecasts, assumes peak was 2.5% in q3 followed by decline
    to 1.5% avg

Headlines via Reuters.

Bolding above is mine. The Bank forecasts both headline and core inflation not returning to the band until the end of 2025. The bank, if you need a reminder is 2 to 3%. The December of 2025 forecast is 2.9%, which of course is the extreme top of the band. The earlier complacency of the RBA is biting them, and the Australian people.

Full text is here:

Statement on Monetary Policy
November 2023

This article was written by Eamonn Sheridan at www.forexlive.com. Source