Despite inflation falling from its peak in 2022, underlying inflation remains high, with the RBA indicating it won’t hit its target until 2026.
The Reserve Bank of Australia (RBA) has decided to keep the cash rate steady at 4.35 percent, disappointing mortgage holders during the Christmas month.
The Board acknowledges that while inflation has decreased from its 2022 peak, underlying inflation levels are still elevated. The RBA has projected that inflation is unlikely to reach its target until 2026.
This implies that households will need to continue to be cautious with their spending as the economy continues to face challenges.
In a statement released on Dec. 10, the central bank emphasized that inflation is expected to remain well above the target midpoint of 2.5 percent until 2026, despite efforts to curb aggregate demand through higher interest rates.
Recent data from the Australian Bureau of Statistics (ABS) revealed that the economy expanded by 0.3 percent in the September quarter, slightly better than the 0.2 percent growth in the previous three months but below the anticipated 0.5 percent increase.
Annual economic growth stood at 0.8 percent, down from 1 percent in June and lower than the expected 1.1 percent growth.
Labor Market Conditions and Wage Pressures
The RBA noted that although the labor market remains tight, there are signs of easing in some indicators.
The unemployment rate rose to 4.1 percent in October, up from 3.5 percent in late 2022. However, employment growth was robust in the three months leading to October, with the participation rate staying near record levels.
Vacancies remain relatively high, and average hours worked have stabilized. Wage pressures have eased more than anticipated, with the Wage Price Index (WPI) growing by 3.5 percent for the year up to the September quarter.
However, labor productivity growth remains weak, and certain cyclical labor market indicators, such as youth unemployment and underemployment rates, have decreased in recent months.
Inflation Risks and Global Economic Outlook
The Board warned that while inflationary pressures are on the decline, risks still persist. Global central banks are easing policies, but geopolitical uncertainties and a fragile global economy continue to pose challenges.
Domestically, a slower-than-expected recovery in household consumption could impede growth and worsen labor market conditions.
Governor Emphasizes Patience and Long-Term Goals
RBA Governor Michelle Bullock stressed the importance of patience in addressing inflation concerns. She highlighted the need to sustainably reduce inflation within the 2-3 percent target range, despite recent improvements.
Bullock emphasized the necessity of continued vigilance, stating that the RBA would need to assess various economic and financial indicators to inform future decisions.
Following recommendations from the International Monetary Fund (IMF) to implement stricter fiscal policies to combat inflation, the Australian government faces challenges balancing cost-of-living support and broader economic activity.
Chalmers Aims to Announce New RBA Boards Before Christmas
Treasurer Jim Chalmers expressed his intention to announce two new Reserve Bank boards—focused on setting the cash rate and governance—before Christmas, pending consultations.
This restructuring follows an agreement to split the RBA board, marking a significant change in the central bank’s structure.
Chalmers emphasized the importance of consulting with stakeholders and opposition parties to ensure a thorough and inclusive process in appointing board members.
Overall, the RBA’s decision to maintain interest rates steady reflects growing confidence in easing inflationary pressures, signaling positive progress in the fight against inflation.
Please rewrite this sentence.
Source link
