Inflation ‘proving more persistent than expected’: RBA

The Reserve Bank of Australia has lifted interest rates for the 13th time in the present tightening cycle, bringing the official cash rate to 4.35 per cent.


* Inflation has passed its peak but is still “too high” and “proving more persistent than expected a few months ago”, according to the RBA board

* New staff forecasts were previewed, due for full release on Friday. Headline inflation now expected to be around 3.5 per cent by the end of 2024 (August forecast was 3.3 per cent by December 2024) and “at the top” of the target range by the end of 2024 (August forecast was 2.8 per cent by December 2025)

* The RBA board decided another interest rate rise was warranted so they could be “more assured” that inflation would return to the two to three per cent target range in a reasonable timeframe

* The board explained why they had been on hold for the past four months, noting the lag time between movements in the cash rate and their impact on the economy

* Yet the latest data on inflation, the labour market, economic activity and the revised set of forecasts “suggests that the risk of inflation remaining higher for longer has increased”

* Working in the other direction is weakening consumption and dwelling investment, as high inflation weighs on real incomes

* The board reiterated its commitment to returning inflation to target and the risks associated with not doing it quickly enough – “high inflation makes life difficult for everyone and damages the functioning of the economy”

* Several sources of uncertainty cloud the outlook, including the lag time between interest rate hikes and their economic impact, persistent services inflation overseas that could eventuate in Australia, unclear household consumption patterns, and the possible implications of conflicts abroad and the troubled Chinese economy

* The door has been left open to another hike, but the language has shifted since the October meeting – “whether further tightening of monetary policy is required to ensure that inflation returns to target in a reasonable timeframe will depend upon the data and the evolving assessment of risks” has replaced “some further tightening of monetary may be required…”


Poppy Johnston
(Australian Associated Press)


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