RBA highlights growth, downplays inflation

Garry Shilson-Josling, Economist
(Australian Associated Press)


Forget inflation, at least for the time being, the Reserve Bank’s focus right now is on lifting economic growth and reducing unemployment.

The minutes of the central bank’s latest interest rate meeting have made it clear that the central bank is preoccupied with ensuring the economy has enough momentum to generate plenty of jobs.

For the past 23 years, the central bank has framed its monetary policy against the background of a two to three per cent inflation target.

But the minutes of the RBA board’s October 4 meeting are focused on the economy’s growth rate, conditions in the jobs market, and risks in the housing market.

All of those things ultimately affect inflation, but the minutes contained precious few direct mentions of inflation itself.

A casual reader of the minutes would not learn that the inflation rate was currently below the target range, let alone discover its exact pace of 1.0 per cent.

Whether by accident or design, this focus is in line with the main problem facing the RBA: getting the economy growing quickly enough to lower the unemployment rate, which RBA governor Philip Lowe on Tuesday said was still about half a percentage point above the “full employment” level that he estimates is five per cent.

Policy decisions are still being made in accordance with the target, with the aim of lifting inflation into the target band.

So, a weak inflation figure when the September quarter numbers are released next week could set the scene for another rate cut.

But the RBA is clearly aiming at the intermediate step of winding back the slack in the economy that’s keeping a lid on price rises rather than the inflation rate itself.

“There was a reasonable prospect of sustaining growth in economic activity that would support further employment growth and, in time, a gradual increase in wage growth and inflation,” the RBA said in the minutes.


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