High inflation not cooling soon, says RBA

Australia’s inflation rate remains “high” and will take some time to cool down to relieve pressures on households and businesses, a senior Reserve Bank official said.

Marion Kohler, economic analysis chief at the RBA, painted an uncertain picture of the inflation outlook during the bank’s annual forecasting conference on Tuesday.

This came after the RBA announced its revised inflation forecast last week, which pointed to a drop in inflation to 3.3 per cent by June, lower than the predicted 3.9 per cent. The central bank also kept the cash rate steady at 4.35 per cent at their first meeting of the year.

Ms Kohler said while inflation was coming down at a faster rate than expected there was still a “range of uncertainties”.

“It is possible that – following a period of large declines in real incomes – households save more of their income than we expect and so consumption remains subdued for longer than anticipated,” she said. “This would put downward pressure on labour demand and inflation.”

Ms Kohler said the central bank expected Australia’s economy to slow during 2024 as households continue to struggle after back-to-back interest rate hikes and soaring living costs. She said many Australian households had cut back on spending and drawn on their savings buffers in response to high inflation.

An easing of inflation pressures and a return of income growth should see an increase in spending towards the tail end of 2024, Ms Kohler said, but added that there were “always uncertainties” around forecasts.