The Reserve Bank of Australia (RBA) has indicated the possibility that inflation may exceed earlier expectations in the third quarter, citing stronger-than-anticipated economic signals even as employment growth slows.
Speaking on Wednesday at the Citi Australia & New Zealand Investment Conference in Sydney, Assistant Governor Sarah Hunter said the central bank is weighing mixed signals – resilient domestic demand on one hand, and easing employment gains on the other. She warned that slower productivity growth is limiting how quickly wages can rise and how fast the economy can expand.
Hunter said the RBA has lowered its medium-term productivity growth estimate from 1% to 0.7%, which reduces the economy’s non-inflationary growth rate to about 2%. She linked the slowdown to “a lack of competition, business dynamism, and capital deepening.”
In its September policy statement, the RBA noted that employment growth had weakened by slightly more than expected but that the unemployment rate was steady at 4.2% in August. The board also flagged that recent partial data suggest inflation in the September quarter may be higher than anticipated.
Figures from the Australian Bureau of Statistics showed full-time employment dropped by about 40,900 in August while part-time work rose by 35,500, leaving the overall jobless rate unchanged.
The RBA said the latest labour figures, along with early inflation data, suggest price pressures in the September quarter may exceed earlier projections. Headline consumer prices rose 3.0% year-on-year in August – the fastest pace in 12 months – while core measures were mixed. The outcome has dampened expectations for near-term rate cuts.
On household spending, Hunter said consumer data hasn’t been weaker than expected but could soften slightly in the September quarter. She also pointed to uncertainty in the global economy, describing US trade policy as “an unpredictable situation” that continues to weigh on global growth.
“The board will adjust policy as appropriate as new information comes to hand,” Hunter said.
The RBA has kept the cash rate unchanged at 3.60% since August, after three reductions earlier in the year. Following Hunter’s remarks, the Australian dollar fell 0.31% to around US$0.6493.
