MNI BRIEF: Local Services Fueling Inflation - RBA's Kohler

Rapid growth of domestic market services prices will continue to fuel Australian inflation, which will fall slower than initially expected, according to Marion Kohler, assistant governor at the Reserve Bank of Australia.

Speaking at an industry conference in Sydney, Kohler noted the Reserve’s recent review of its forecasts had caught the RBA by surprise. “This annual exercise is always revealing, but the biggest lesson is usually that humility is important when forecasting,” she said.

The November Statement on Monetary Policy released on Friday pushed out the Reserve’s goal to pull inflation back to the top of its 2-3% target band to December 2025 from June 2025. The RBA board on Nov. 7 lifted the cash rate 25bp to 4.35%, its highest level since 2011. (See MNI RBA WATCH: RBA Hikes, Drops "Further Tightening" Language)

Kohler added strong demand had allowed businesses to pass on costs, while wage growth had picked up over the last year. “[This] now appears to have broadly stabilised and is forecast to decline gradually over the next couple of years as labour market conditions ease," she said. Kohler noted the next stage of bringing inflation back to target will be more drawn out than the first.