Will Future Made in Australia push the RBA off the narrow path?
If the budget does deliver policy changes that add to demand, inflation will probably keep falling slowly and stay too high for the central bank’s inflation target.
Australia’s economy is operating at close to its full capacity. This may sound like an ideal situation, but it also presents challenges for policymakers.
The most obvious is that the Reserve Bank of Australia is still dealing with inflation that is too high. As the central bank said in its recent public comments, aggregate demand in the economy still exceeds aggregate supply.
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Paul Bloxham is HSBC’s chief economist for Australia, New Zealand and global commodities.
