Central Bank Tentatively Hopeful for Reduction in Inflation
The Reserve Bank of Australia (RBA) has decided to keep the cash rate steady as the tight labour market delays inflation’s return to the target range, with stability projected by 2026.
Following a notable drop in inflation, Governor Michelle Bullock of the RBA has cautiously expressed optimism, emphasizing the need for sustained progress.
The Australian Bureau of Statistics (ABS) reported that the Consumer Price Index (CPI) remained at 2.1 per cent for the 12 months up to October 2024, marking the lowest annual inflation rate since July 2021.
Despite acknowledging the relief felt by Australians due to the decrease in living costs, Governor Bullock stressed the importance of continued improvement.
In her address at the Committee for Economic Development of Australia (CEDA) Annual Dinner in Sydney on Nov. 28, Bullock mentioned, “The word ‘sustainably’ is important because it recognises that we need to look through temporary factors that influence the headline inflation rate from time to time.”
Tight Labour Market Holds Cash Rate Steady
Due to Australia’s tight labour market causing a delay in achieving the RBA’s 2.5 per cent target inflation rate, Governor Bullock has advised caution regarding changes to the cash rate.
She did not commit to a specific timeline for a potential cut.
She noted that while global central banks are easing policies as inflation approaches targets, Australia’s demand still exceeds supply, leading to restrictive financial conditions.
The RBA anticipates inflation to stabilize by late 2026, assuming the cash rate remains unchanged. However, the bank clarified that this was a scenario, not a forecast, and adjustments to policy would depend on new data.
Bullock attributed part of the decline in inflation to temporary factors such as government electricity rebates and fluctuations in global fuel prices.
Despite progress, she highlighted concerns regarding underlying inflation, pointing out trimmed mean inflation at 3.5 per cent over the year to September—down from 5.1 per cent the previous year but still above the target range.
She also mentioned ongoing economic challenges, with demand surpassing supply in Australia’s tight labour market.
Treasurer’s Response and Criticism from Opposition
Treasurer Jim Chalmers praised the latest CPI data as a sign of successful economic management by the government, noting the significant decrease in inflation compared to the previous government’s tenure.
Despite the positive news, opposition leaders remain critical of the government’s handling of cost-of-living pressures for everyday Australians.
