MNI BRIEF: Trade Uncertainty To Lift CPI - RBA's Hauser

Global trade uncertainty could lift trimmed mean inflation over the mid-term and stabilise slightly above the Reserve Bank of Australia’s 2.5% midpoint target, Deputy Governor Andrew Hauser noted in a industry presentation Wednesday, tempering expectations of further easing. 

“Why then did the Board cut rates? Did we reject the staff forecasts, as some have claimed? Or did we suddenly and confusingly relax our previously stated intolerance for persistent inflation deviations from target? Nothing of the sort – for me at least, the rationale is relatively simple,” he said, noting positive inflation and wage data had given the board greater confidence that underlying inflation was on track to return to the target faster than previously thought. (See MNI RBA WATCH: Board Delivers Hawkish 25BP Cut)

The board also recognised that uncertainty on the inflation outlook become larger the further out, he added. "Some have flagged a concern that the Board’s messaging on rates feels like fine-tuning," he noted. "But the Statement on the Conduct of Monetary Policy agreed between the Treasurer and the Board is clear: we set monetary policy such that inflation is expected to return to the midpoint of the target range. And we do that because it maximises the chances of inflation remaining sustainably in that range. The rate cut in February reduces the risks of inflation undershooting that midpoint, but the Board does not currently share the market’s confidence that a sequence of further cuts will be required."