(Bloomberg) -- Australia’s services price inflation remains high and is only expected to cool gradually, an outcome that’s crucial to the central bank meeting its objectives, according to Marion Kohler, head of economic analysis at the Reserve Bank.
“Firms in our liaison program continue to say that they face pressure from higher labor and non-labor costs like professional services, logistics and insurance,” Kohler said in a speech on Tuesday. The anticipated “decline in services price inflation is necessary for the inflation target to be achieved over time.”
The RBA aims for the midpoint of a 2-3% inflation range.
Kohler mainly addressed the RBA’s updated forecasts released last week. These showed a closely-watched measure of core inflation, the trimmed mean gauge, will ease further to 3.1% in December, from 4.2% at the end of 2023, but will only fall back inside the RBA’s target band in December 2025.
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That will occur even as the effects of the bank’s 13 rate hikes on the economy “start to fade,” with GDP growth seen accelerating later this year, Kohler said.
“This forecast is underpinned by a pick-up in consumption growth as real household income growth turns positive again this year,” she added.
The RBA’s forecasts that inflation will remain elevated for an extended period explain its relatively hawkish stance compared with international peers.
Governor Michele Bullock said last week that the rate-setting board wasn’t yet ruling out further monetary policy tightening.
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