Australia’s core inflation remained elevated in the last quarter, reinforcing the Reserve Bank of Australia’s (RBA) stance that price pressures will persist and that monetary policy must remain tight for the foreseeable future. The slow pace of disinflation is partly attributed to Australia’s lower peak interest rates compared to other countries, as the RBA is concerned about the ability of heavily indebted households to manage significantly increased mortgage repayments. The central bank has maintained its key rate at a 12-year high of 4.35% since last November, with most economists not anticipating any cuts before February 2025.
RBA officials have expressed vigilance regarding potential upward price pressures stemming from increased consumer spending due to government income tax cuts initiated in July, as well as from ongoing global geopolitical and trade tensions. They have consistently noted that aggregate demand continues to outstrip the economy’s supply capacity.
It remains uncertain whether households are choosing to save or spend their additional income. Should consumption increase, economists warn that the return of inflation to target levels could be slower than anticipated. Retail sales data set to be released on Thursday will offer further insights into economic demand.
Additionally, the government has implemented energy subsidies aimed at curbing inflation. The latest report indicated that the headline Consumer Price Index (CPI) eased to 2.8% in the third quarter year-on-year, falling short of expectations for a 2.9% increase.
Related topics: