Australia Central Bank Holds Rates, Upgrades Inflation Outlook

Australia Central Bank Holds Rates, Upgrades Inflation Outlook

The Reserve Bank of Australia (RBA) has significantly raised its inflation forecasts, with expectations that headline inflation will reach 3.8% by the June quarter and remain at this level until the end of the year. This adjustment follows a higher-than-anticipated inflation reading for the first quarter. The central bank attributes part of the inflationary pressure to increased petrol prices and the phase-out of electricity rebates, estimating that these factors will add 0.25 percentage points to the year-ended inflation in December.

Despite the current inflationary concerns, the RBA projects that inflation will gradually ease, predicting a fall from 3.2% to 3% starting in 2025, aligning with its target range of 2 to 3%. This is underpinned by the assumption that the cash rate will be maintained at the current 4.35% until at least mid-2025. The RBA has also removed the prospect of a rate cut in the near future from its forecasts.

The labor market is anticipated to tighten further, with unemployment expected to peak at a lower-than-previously-forecasted rate of 4.2%. However, the RBA notes potential risks to inflation over the next year, including price increases for services and growth in rents. Additionally, household consumption is projected to slow, with an increase of just 0.1% by June 2024. The central bank has signaled that it will remain vigilant to inflationary risks, implying a cautious approach to monetary policy in the coming period.


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