CANBERRA, AAP – Reserve Bank of Australia governor Philip Lowe will get the opportunity to calm fears of an inflation outbreak in a lunchtime address to economists.
Financial markets have been jittery for some months about the inflation outlook, fuelled by rising oil prices and supply-chain disruptions as the global economy recovers from the impact of the COVID-19 pandemic.
Such concerns rose to another level last week when the US consumer price index soared to an annual rate of 6.2 per cent in October, the fastest pace since 1990.
US core or underlying inflation – which strips out food and energy – increased 4.6 per cent, the fastest gain since 1991. The spike has raised expectations the US Federal Reserve will soon have to raise interest rates.
Financial markets have also speculated that the RBA will raise the cash rate as early as next year after domestic underlying inflation rose to 2.1 per cent in the September quarter.
This was the fastest pace in six years, taking inflation within the RBA’s two to three per cent inflation target.
But RBA assistant governor for economics Luci Ellis played down any linkage between Australia and the US in terms of inflation and interest rates.
“We are not quite in the same situation as the US in terms of the inflation pressures. We are seeing some of it, but to a lesser extent,” she told a parliamentary hearing on Monday.
“There is no necessary linkage in what the Fed does and there is no requirement for us to move step for step with that.”
Dr Lowe has also been adamant the cash rate – currently at a record low 0.1 per cent – will not be increased for a couple of years yet, saying markets have “completely overreacted” to the inflation data.
“I still struggle with the scenario that rates would need to be raised next year,” Dr Lowe said after this month’s board meeting.
Dr Lowe will speak on “recent trends in inflation” when he addresses the Australian Business Economists webinar on Tuesday.
The RBA will also release minutes of its November 2 board meeting, while the weekly ANZ-Roy Morgan consumer confidence index will be released.