Growth in services process keeping inflation elevated

Price growth remains stubbornly high, with the Australian Bureau of Statistics reporting an inflation rate of 3.4% in January, the same as the month before.
 
The Reserve Bank of Australia (RBA) has been trying to reduce inflation to its target range of 2-3%, by raising interest rates to slow demand and reduce spending. Inflation is forecast to fall to 3.2% by the end of this year and 2.8% by the end of next year.
Speaking at the ABE Annual Forecasting Conference last month, the RBA’s head of economic analysis, Marion Kohler, said there had been a significant divergence in the path of core goods and services price inflation.
 
“Like in many other advanced economies, most of the decline in inflation so far in Australia has been from lower goods price inflation,” she said.
 
“But services price inflation remains high and broadly based. This strength has been because of continued pressure from the level of demand exceeding supply alongside strong growth in domestic costs.”
 
Ms Kohler said a decline in services price inflation was necessary for the RBA to achieve its inflation target, and forecast that this would occur “gradually”.
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