Reserve Bank deputy governor Andrew Hauser has suggested that this week’s jump in inflation has not marked a major turning point in the central bank’s outlook.
Speaking at a conference in Sydney on Thursday night, Mr Hauser noted there had been a “quite a substantial market reaction”, as traders moved quickly to price in a high chance of a rate hike at the next board meeting in August.
“It would be a bad mistake to set policy on the basis of one number, and we don't intend to do that,” he said, noting that this week’s monthly inflation figures were not a complete picture of consumer price pressures.
“There's a whole series of data coming out between now and when we meet in August. If you look at our statement from last month, we said three things: inflation remains above target, and is proving persistent; the outlook remains highly uncertain; and returning inflation to target is the priority. And all three of those things were true a month ago, and they are true now.”
Mr Hauser, who recently joined the RBA from the Bank of England, said the persistence of inflation in the services sector was “not unique” to Australia.
The deputy governor said there were a number of “hypotheses”. One is that the impact of rate hikes is simply taking longer to flow into the services sector, in which case “the right policy response to that clearly would be to hold your nerve”.
Mr Hauser said the extraordinary resilience of the jobs market may also be playing a role, while there was also the issue that many of the stubborn increases have been in “administered” prices – such as insurance or university fees – which monetary policy struggles to effect.
“Do you have to push the rest of the inflation basket down a little bit further, in order to bring inflation back to target? That's a challenge and a question for central banks,” he said.
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