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Australia's Central Bank Sees Persistent Inflation and Strong Job Growth



Inflation

Australia: Australia’s central bank anticipates a gradual decline in underlying inflation, revising its employment growth outlook upwards while reducing economic growth forecasts due to cautious consumer spending. In its quarterly Statement on Monetary Policy, the Reserve Bank of Australia (RBA) reported that demand continues to exceed supply, although the gap is narrowing. Underlying inflation is projected to slightly decrease to 3.4% by year-end from 3.5% in the third quarter, remaining above the 2-3% target range, and is expected to drop to 2.8% by late 2025 and 2.5% by the end of 2026. The RBA has raised interest rates by 425 basis points since May 2022 to combat inflation and is expected to maintain the rate at 4.35% in its upcoming meeting. It also noted that financial conditions in Australia are less tight than in many other developed countries.


Despite strong job growth, the unemployment rate, currently at 4.1%, is expected to rise to 4.3% by year-end and peak at 4.5% by the end of 2025. Employment growth is forecasted to increase to 2.6% by the end of this year before slowing to 1.4% next year. The headline consumer price index (CPI) is projected to dip to 2.6% by the end of 2024, aided by government electricity rebates, but could rise to 3.7% in mid-2025 as the rebates expire. Economic growth is expected to slow to 1.5% by year-end, before returning to a trend rate of 2.25% over the long term, with interest rates anticipated to stay at 4.35% until mid-2025, falling to 3.5% by December 2026.



Source: Reserve Bank of Australia (RBA)

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