RBA alert to early signs tariffs pushing up inflation in US
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The news: Reserve Bank governor Michele Bullock has expressed optimism around the progress on getting inflation back into the target band but has noted the data is in-line or stronger than the central bank was anticipating.
She also warned there are signs in other economies where inflation is still evident and the RBA needs to be "alert". This includes the US, where she suggested there are early signs tariffs are putting upward pressure on inflation, and the UK.
Bullock, speaking at a House Standing Committee on Economics public hearing, said there are "risks on both sides" for inflation.
“I think everyone’s comfortable that they’ve got inflation back down much closer to their targets but I think there are … signs that we can’t be complacent yet about where inflation is at overseas," she said.
The context: The RBA board will meet next week for its September rate decision. The vast majority of economists expect the central bank to keep rates on hold at 3.6%.
However, there is disagreement about the future trajectory of rates with some analysts thinking there will be a final 25 basis points worth of easing in November and others expecting a series of further cuts.
What they said: "Since the August meeting, domestic data have been broadly in line with our expectations or if anything slightly stronger — the board will discuss this and other developments at our meeting next week," Bullock said in her opening statement.
She noted, though, that the economic outlook "continues to be clouded by uncertainty".
"The global environment is particularly uncertain and unpredictable, but monetary policy is well placed to respond if it seems international developments could have a material impact on Australia’s economy," she said.
"There is also a risk that the recent pick-up in growth in domestic economic activity is not sustained, or, on the other hand, it could be materially stronger than we anticipate.
"Finally, there may be more excess demand in the economy and labour market outcomes may be stronger than expected. We are mindful that productivity growth has not picked up and growth in unit labour costs remains high."
The source: House Standing Committee on Economics public hearing
