Inflation pressures in Australia’s economy are now projected to ease at a slower pace than previously anticipated, according to Marion Kohler, acting chief economist at the Reserve Bank of Australia.
In a speech delivered to a conference of financial market participants, Kohler highlighted that domestically sourced inflation, especially services price inflation, has been prevalent and slow to decline. The continued strength in demand has allowed businesses to pass on cost increases to customers.
These recent remarks come after the RBA’s decision last week to raise the official cash rate by 25 basis points to 4.35% and revise its inflation outlook for the next year.
Although wages growth has shown signs of improvement over the past year, it appears to have reached a stable level and is expected to gradually decline in the coming years as the job market weakens.
However, the RBA’s forecasts rest upon the assumption that productivity growth will rebound to its pre-pandemic trend soon, despite limited indications of such a recovery thus far.
Nevertheless, Kohler added that the RBA predicts inflation to be slightly below 3.0% by the end of 2025, aligning with its target.
It is important to note that a recent hike in fuel prices serves as a timely reminder that unexpected supply shocks could impact headline inflation.
“The road ahead may present challenges,” cautioned Kohler.