The evidence is that immaculate disinflation is unlikely in Australia
Economic conditions indicate the cash rate has not been high enough, increases the risk inflation will be persistent, and it will take longer before the RBA can cut rates.
Financial markets are betting that central banks are done raising interest rates and the next move will be down, starting around the middle of the year. That might be right in other economies, but it’s unlikely in Australia.
A range of evidence suggests monetary policy in Australia has not been sufficiently tight to be confident that inflation will return to the centre of the Reserve Bank of Australia’s 2-3 per cent target. That’s a risk for inflation, and the outlook for interest rates.
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Jonathan Kearns is chief economist at Challenger and Adjunct Fellow at Macquarie University. He previously held a range of senior roles at the Reserve Bank of Australia.
