The RBA has
consistently highlighted the challenges involved with returning inflation to
the target range of 2-3%.
Headline
inflation has reduced at a faster-than-forecast pace, falling from a peak of
7.8% at the end of 2022 to 4.1% annually, while the latest quarterly inflation
reading, at 0.6%, is the lowest since March 2020.
However,
beneath the headline result, it is clear that services inflation remains
stubbornly high, reflecting tight labour market conditions but also ongoing
growth in services costs such as insurance & financial services (+8.1%
annual) and housing costs including rents (+7.3% annual), new builds (+5.1%
annual) and utilities (+8.4% annual).
The RBA
expects services inflation to decline only gradually, making the timing for a
rate cut highly uncertain and dependent on further progress in reducing
inflation emanating from the services sector.
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Jason Gwerder
Friday, 22 March 2024