In a speech, Marion Kohler, Acting Assistant Governor of RBA, remarked that decline in inflation is expected to be a “more gradual process than previously thought.”
This outlook stems from the current economic environment characterized by “still-high level of domestic demand” and “strong labour” alongside other cost pressures. These factors contribute to the prediction that inflation will hover just below 3% by the end of 2025.
The Assistant Governor pointed out that the recent trend of declining inflation has primarily been “driven by lower goods price inflation.” In stark contrast, “domestically sourced inflation” – especially in the services sector – has shown resilience, being “widespread and slow to decline.”
Kohler also underscored the nuanced challenges in the next phase of controlling inflation, which she anticipates to be “more drawn out than the first.” This outlook aligns with experiences in other advanced economies that have faced similar inflationary patterns.
Furthermore, she cautioned about the potential for unforeseen challenges, citing the recent increase in fuel prices as an example of supply shocks that could unpredictably influence headline inflation.
Kohler emphasized the uncertain nature of the journey ahead in managing inflation, stating, “the road ahead could be bumpy.”
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