RBA’s Hunter does not see inflation volatility in near term
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The news: Inflation volatility is not expected in the near term, as the Reserve Bank has found no significant risks that inflation expectations could become de-anchored.
The context: The RBA’s assistant governor (economic) Sarah Hunter addressed the issues of inflation expectations at the Citi Australia and New Zealand Investment Conference in Sydney today in her keynote speech.
Hunter explained that macroeconomists generally agree that maintaining low and stable inflation over time depends on well-anchored inflation expectations.
This is because inflation expectations influence decision-making for both households and businesses in areas such as retirement savings, capital investment, pricing, staffing, long-term interest rates, exchange rates and asset prices.
However, because expectations feed into actual inflation outcomes, de-anchored expectations can lead to increased inflation volatility. This, in turn, creates uncertainty, which complicates decision-making for everyone.
Hunter noted that the RBA board remains vigilant for any signs of de-anchoring in Australia. The bank tracks a range of inflation expectations, including various financial market measures and surveys of households, unions and professional forecasters.
She said that current analysis indicated that inflation expectations had not become de-anchored despite the current high inflation experience.
What they said: “So we’re not currently concerned that expectations could become de-anchored in the near term,” Hunter said.
“But we do think it’s important that we track how they’re evolving and that we understand how expectations are formed, so we can monitor whether there are any signs of this risk materialising in the future.”
The source: Reserve Bank of Australia
