Yesterday’s higher-than-expected CPI has some leading economic
commentators debating whether it portends a prolonged return to high
inflation:

  • If the Reserve Bank of Australia does not increase interest rates next
    week it will be the biggest upset since Old Rowley won the 1940
    Melbourne Cup at 100-1. The big question now is whether the RBA will
    follow next week’s tightening with another. – Alan Mitchell, The Australian Financial Review.

  • The CPI needs to be put in context. It’s uncomfortably high, but
    not a pointer to runaway inflation, rate hike after rate hike and then
    1990-style economic collapse – Terry McCrann, Herald Sun.

  • The RBA is not about to raise the rate because banana prices
    just quadrupled or because fuel prices have jumped further. It is about
    to raise the rate because its best measures of trend inflation show a
    material and somewhat unexpected acceleration. The RBA’s main concern
    remains that the unusually low unemployment rate represents fertile
    ground for bigger wage rises – Macquarie Bank strategist Rory
    Robertson, The Australian Financial Review

  • The inflation signals are flashing orange, but not yet red. The
    risk is that a premature rate rise could deepen the divide in our
    two-speed economy: mining booming, other sectors flat or
    shrinking. But one rate rise too many is rarely catastrophic, and the
    Reserve has often argued that by moving early, you reduce the need
    to move a second time. – Tim Colebatch, The Age

  • High petrol prices are having a direct and potentially
    continuing effect on headline inflation, which the RBA is responsible
    for ensuring does not consistently exceed its target band over the
    medium term. For the RBA to ignore this effect risks encouraging a lift
    in inflation expectations throughout the economy. – Editorial, The Australian Financial Review.
  • As initially
    disturbing as the 4% inflation number is, it is
    not yet time to push the panic button. There remains a good chance that
    a further modest tightening of the monetary screw will keep inflation
    in check and so underwrite a further extension of Australia’s
    remarkable run of economic growth. – Editorial, The Australian

  • Australia’s affluent economy has entered its most troubling phase
    since the implementation of the GST in the second half of 2000, when
    the Reserve Bank was still jacking up interest rates as the real
    economy was shrinking. The problem back then was the same as it is today: Sydney. The
    nation’s largest economy is in a rut and it makes the bank’s task of
    fighting inflation fraught. – George Megalogenis, The Australian

Peter Fray

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