As expected, the Reserve Bank of Australia (RBA) has unanimously chosen to keep the official cash rate on hold at 3.60%.
In its media release accompanying the decision, the RBA suggested that “temporary factors” are behind much of the recent rise in inflation, but also admitted that it is unsure of the extent:
While inflation has fallen substantially since its peak in 2022, it has picked up more recently. The Board’s judgement is that some of the recent increase in underlying inflation was due to temporary factors and there is uncertainty about how much signal to take from the monthly CPI data given it is a new data series. Nevertheless, the data do suggest some signs of a more broadly based pick-up in inflation, part of which may be persistent and will bear close monitoring.
The RBA also noted that Australia’s labour market remains “a little tight”:
Various indicators suggest that labour market conditions remain a little tight. The unemployment rate has risen gradually over the past year and employment growth has slowed.
However, measures of labour underutilisation remain at low rates, surveyed measures of capacity utilisation are above their long-run average and business surveys and liaison continue to suggest that a significant share of firms are experiencing difficulty sourcing labour.
Wages growth, as measured by the Wage Price Index, has eased from its peak but broader measures of wages continue to show strong growth and growth in unit labour costs remains high.
The uncertain outlook means that the RBA will remain on hold for the time being as it assesses how data and the economy evolve:
The recent data suggest the risks to inflation have tilted to the upside, but it will take a little longer to assess the persistence of inflationary pressures…
The Board will be attentive to the data and the evolving assessment of the outlook and risks to guide its decisions.
In short, the decision went exactly as expected by the market and economists.
