Friday, June 10 2022

“Members noted that it was possible that companies’ pricing behaviors were undergoing a change from the pre-pandemic period, with companies becoming more confident that increased prices would not significantly reduce demand or erode their competitive position,” the minutes read.

Members observed that it would be “more difficult” to bring inflation back to target if “the psychology in Australia were to change in a lasting way”.

Conditions met

After previously indicating they wanted to see this week’s wage data, board members said evidence of widespread wage pressure from the RBA’s business liaison program and major business surveys were clear, and when combined with the CPI result, the conditions for an increase had been met. .

They also agreed that “further interest rate increases would likely be needed to ensure that inflation in Australia returns to target over time”, but it would be necessary to “monitor” how the rate hike affects highly indebted households to determine the timing of future rate increases. .

“In making its decisions, the Board agreed that it would continue to be guided by inflation and labor market evidence, while noting that significant uncertainties remain,” the minutes read.

In its monetary policy statement after the meeting, the RBA raised its CPI inflation forecast to 5.9% this year, before moderating to 3.1% by the end of 2023.

He also expects core inflation – his preferred measure – to climb to 4.6% later this year, well above the 2-3% target range.

“The underlying drivers of inflation were expected to change over the forecast horizon, with the effects of global supply disruptions and housing cost inflation waning while domestic labor costs were increasing.”

The market consensus is for annual wage growth of 2.5% in the year to March 31 and 0.8% in the March quarter, but the RBA noted that this measure does not hold. not take into account all elements of labor costs.

“Average incomes were expected to grow at a faster rate than the [Wage Price Index]as companies have turned to bonuses, allowances and other measures to attract and retain workers,” the minutes read.

“Given the tight labor market and increased job mobility, more companies had to pay higher wages to attract and retain staff, and labor costs were rising at a rapid pace. faster than the previous year.”


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