Reserve Bank governor Michele Bullock told a Senate committee yesterday that the latest consumer price index data would prompt the central bank to change its inflation outlook but it was too early to say whether it represented a “material” change in terms of monetary policy.
On Wednesday the Australian Bureau of Statistics reported that the CPI rose 1.2 per cent in the September quarter, higher than the 0.8 per cent rise in the June quarter and above market expectations.
Appearing before the Senate Economics Legislation Committee, Bullock said: “We got an important piece of information yesterday. We need to go away and analyse that.”
She said the RBA was wary of some of the more persistent contributors to inflation, particularly on the services side of the economy, and it was not clear that it had finished the job.
The RBA’s timeline for when inflation will move back into the target range of 2 to 3 per cent has been pushed out over the past year and is now marked down for the December quarter 2025.
Bullock said she was reluctant to allow it to be pushed out further. “The longer inflation is outside the target band the more likely inflation expectations will adjust to that,” she said.
“If we can do it in that timeframe, we think we can keep inflationary expectations down.”
In a speech earlier this week, Bullock said: “The board will not hesitate to raise the cash rate further if there is a material upward revision to the outlook for inflation. At the same time, the board is mindful that growth in demand and the rate of inflation have been moderating and there are long lags in the transmission of monetary policy.
“The board has been clear that it has a low tolerance for allowing inflation to return to target more slowly tan currently expected. Accepting this would risk eroding publi credibility in our commitment to low and stable inflation. The long-term costs to the economy if that were to happen would be considerable.”