The Reserve Bank of Australia (RBA) has begun to see signs that Australians expect inflation to remain above the central bank’s target for an extended period, RBA Deputy Governor Andrew Hauser said on 21 October.
“We hear that from [our community] liaison, and we have a survey, the BOSS survey, … which shows that [an] increasing share of businesses [think] that maybe three to three and a half percent inflation is the new normal,” Hauser told investors at Citi’s Australia and New Zealand Investment Conference.
“That is the central banker’s nightmare. We can’t allow expectations to shift away from the target,” Hauser added.
Australian consumers’ two-year forward inflation expectations stood at 6.2% over 12 – 18 October – higher than at any point since early September, survey data from ANZ and Roy Morgan show.
Australia’s inflation outlook has also worsened since the RBA’s Monetary Policy Board last met in late September, according to Hauser. The country’s annual consumer inflation rate reached 4% in August – its highest level since May – largely because of fuel and electricity price increases, data from the Australian Bureau of Statistics (ABS) show.
Brent crude futures prices have also consistently exceeded $109/barrel (A$156/barrel) in recent days, higher than at any point since early May, because of unabated violence in the Middle East and Russia.
Brent crude futures last traded at $109.98/barrel on 22 October, up from $100.34/barrel on 21 September and $93.78/barrel on 20 August, Trading Economics data show.
The RBA may raise interest rates to curb inflation and inflation expectations, it has consistently said in recent weeks.
“[The bank] will … increase interest rates again if that’s what’s needed to get inflation down,” RBA Governor Michele Bullock said on 29 September. “What we’re trying to do is make sure that we have financial conditions tight enough so that, looking forward, … inflation pressure eases,” Bullock added.
By Avinash Govind