SYDNEY, June 24 (Reuters) – Australia’s central bank has work to do to tame “too high” inflation, a top official said on Wednesday, although he added that lower global oil prices stemming from a potential resolution of the U.S.-Israeli war on Iran would be a welcome development.
In a speech about the Phillips curve, Reserve Bank of Australia Deputy Governor Andrew Hauser shed some light on how the framework – which describes the inverse relationship between inflation and unemployment – informed the board’s decisions to raise interest rates this year.
Hauser said the board decided to start raising rates in February because it was concerned that demand in the economy was exceeding supply by more than expected and generating inflation, moving up the steeper end of the Phillips curve. This warranted policy tightening to ensure inflation would cool over time.
“But this is where being on the steeper part of the Phillips curve has a potential silver lining,” said Hauser. “It also implies that timely policy steps to reduce inflationary pressures, of the kind we have taken, should also have a proportionally smaller unemployment cost.”
The RBA has raised interest rates three times this year to head off a war-driven energy shock, fully reversing the amount of policy easing from 2025. Headline inflation slowed to 4.0% in May, but the trimmed mean measure pushed higher to 3.6%, well above the target band of 2% to 3%.
There are signs the labour market is cooling, with the unemployment rate edging up to a 4-1/2-year high of 4.5% in April.
Hauser added that there have been some important economic developments since May, not least the prospect of a possible resolution to the Middle East conflict.
“By itself, lower global oil prices would be a welcome development, helping to lower and flatten the Phillips curve somewhat,” he said. “But a full resolution is not yet assured and we still have work to do to reduce inflation here in Australia, which remains far too high.”
(Reporting by Stella Qiu; Editing by Thomas Derpinghaus)
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