Reserve Bank governor Michele Bullock has pushed back at commentators who are demanding either higher or lower interest rates, telling a parliamentary inquiry current rate settings appear likely to bring inflation down to a manageable level.
In her opening comments to the House of Representatives’ economics committee, Bullock said services inflation remained high while the prices for goods were coming down in a sign that supply chain issues were being addressed.
Reserve Bank of Australia governor Michele Bullock during a hearing with the standing committee on economics at Parliament House in Canberra.Credit: Alex Ellinghausen
Financial markets are pricing in an interest rate cut by December this year, while there are some economic commentators arguing the bank needs to lift the official cash rate to bring inflation down faster.
But Bullock said current rate settings were likely to bring inflation back to within the RBA’s 2-3 per cent inflation target.
“We did not increase interest rates as much as some other central banks. And we have received some criticism for that. Indeed, some commentators continue to call for further tightening in monetary policy,” she said.
“We have been trying to balance bringing inflation back down over a reasonable timeframe, without inflicting unnecessary damage on the labour market. And the board’s judgment to date has been that policy is currently sufficiently restrictive to do that.
“Financial markets are still pricing in a rate cut by the end of the year. The board’s message, though, was that it is premature to be thinking about rate cuts.”
Bullock said that, within services, inflation was about 5 per cent.
“There has been broad-based inflation in market services, reflecting continued demand and the ability for some businesses to pass through costs. Other contributors to high inflation have been rents and insurance, reflecting conditions specific to those industries,” she said.
“All of this has meant that, while goods-price inflation has declined substantially, it has not been enough to offset continued high services-price inflation.”
Bullock said she understood many households would like to see a fall in interest rates, especially for those with mortgages or business operators.
“But the alternative of higher inflation for longer is much worse. Inflation has not been this high for a few decades and I think many people have forgotten how bad it is – some younger people will not have experienced high inflation at all,” she said.
“There is a reason why there is so much talk about the cost of living – high inflation hurts everyone. It reduces what people can buy with their wages, erodes the value of savings, and it disproportionately hurts those on low or fixed incomes.”
Source Agencies
