The Reserve Bank of Australia (RBA) has indicated that it may need to raise interest rates further if inflation does not come under control. In the minutes of the October 3 board meeting, it was revealed that the RBA board considered increasing the cash rate by 25 basis points. The concern stemmed from the persistently high gasoline prices, which could hinder progress in lowering inflation in the coming months.
“The board has a low tolerance for a slower return of inflation to target than currently expected,” stated the RBA. The bank’s objective is to bring inflation back within its 2%-3% target range.
Between June 2022 and June 2023, the RBA raised the official cash rate by 400 basis points. At the October meeting, which was Michele Bullock’s first as RBA governor following Philip Lowe’s departure, the rate was maintained at 4.10% for a fourth consecutive month.
The decision to hold the rate steady was influenced by the belief that the full impact of previous increases had yet to be fully seen. The RBA stated that any future rate hikes would depend on upcoming economic data.
The penultimate board meeting of 2023 is scheduled for November 7. Prior to this meeting, board members anticipate receiving additional data on economic activity, inflation, and the labor market, as well as a revised set of staff forecasts.
Internationally, core services inflation remains persistent, and Australia’s monthly consumer-price index suggests that domestic services prices are declining at a slower pace than desired by the RBA, according to the September minutes.
In August, annual inflation ticked up to 5.2% from 4.9% in July. However, economists view monthly data as less reliable than quarterly figures. Automotive fuel inflation experienced a significant turnaround, registering at 14% in August after a 7.6% annual decline in July.
In the June quarter, annual CPI stood at 6.0%, down from 7.0% in the March quarter but higher than the peak of 7.8% in the December quarter. The September monthly and quarterly data will be released next week.
