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RBA shrugs off inflation concerns

·2-min read
Fruite stalls in a supermarket and RBA Governor Philip Lowe speaking at the Standing Committee of Economics
RBA Governor Philip Lowe said wages need to grow at an annual rate of 3 per cent before interest rates can rise (Source: Getty)

The Reserve Bank of Australia (RBA) has dismissed rising inflation concerns in its June meeting minutes.

The RBA seemingly shrugged off concerns about rising consumer prices as well as concerns wages aren't growing at the pace it needs to keep up.

CommSec chief economist Craig James said the main concern at the moment is that the current lift in the price of many consumer goods is not temporary and will lead to higher interest rates.

“The pre-eminent focus at present is inflation. Given that the sharemarket is being supported by extraordinarily stimulatory conditions, the risks should be uppermost in investor minds,” he said.

“But the RBA continues to deflect concerns about either higher prices or higher wages.”

RBA governor Philip Lowe said in the June minutes: “Members noted that the strong focus on cost containment by businesses meant that it would take some time for spare capacity to be reduced and the labour market to be tight enough to generate wage increases consistent with achieving the inflation target.”

James pointed out that the RBA has said wages will need to grow at an annual rate of at least 3 per cent before it considers raising interest rates and at 1.5 per cent, wages are currently well short of that goal.

“Certainly the July RBA Board meeting should be more illuminating about rate hike views and timetables. At the meeting the RBA will decide on the bond purchase strategy and the 3-year yield target. So watch this space,” he said.

Inflation concerns are rising

Concerns over rising inflation have been growing recently as Government stimulus measures around the world have helped to keep economies growing in the face of pandemic-induced lockdowns.

Wages need to increase to keep pace with the rising cost of goods and services, but the RBA seemed to indicate a rise could be coming.

“Information from the Bank's liaison program and other surveys indicated that labour shortages were appearing in some parts of the economy,” Lowe said.

“The reduction in access to foreign labour and reduced interstate mobility were cited by some firms as contributing factors.”

However, The RBA said despite more industries facing labour shortages, increasing wages is not something those businesses were looking to adopt to retain staff, but rather were offering flexible working arrangements.

“Some firms were also opting to ration output because of labour shortages, rather than pay higher wages to attract new workers,” Lowe said.

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