RBA “very unlikely” to hit inflation targets (ever again!)

The RBA has made clear that it will not tighten monetary policy until such a time that inflation is sustainably within its 2-3% target. Equally, it has declared that to get there it will need higher wages growth, well above 3%. JPM today hoses the entire notion of it:

  • JPM says it is “very unlikely” that the RBA will push wage growth above 3% by 2024.
  • It is trying to deliver a shock to inflation expectations to achieve it.
  • Unemployment will need to fall to 4%.

I agree that reaching these targets is “very unlikely”. Although closed borders and stopped immigration are for the first time in a decade raising the possibility of it, a range of other factors are likely to slow the recovery before too long and make it tough.

First is the incipient slowdown in China. By 2022, I expect today’s iron ore boom to be going comprehensively bust. As it falls below $100, the terms of trade haircut will be severe for national income, softening the wages outlook.

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