Economy ‘in a good spot’ despite sticky inflation: RBA
The central bank chief has warned that although the national economy is in good shape, price rises in Australia’s services sector are difficult to contain.
According to the latest monthly data, inflation is at 2.8 percent, which is at the upper end of the target range of 2 to 3 percent.
However, Central Bank governor Michele Bullock says that risks continue in the service sector, where inflation is not yet fully under control.
“In Australia, as in many countries overseas, services inflation remains a bit sticky,” he told a parliamentary hearing in Canberra on Friday.
“This is offset somewhat by lower goods inflation, but services inflation is still around three percent.”
The services sector, which includes areas such as education and health and professions such as hairdressing, constitutes a large part of economic activities.
Despite her concerns, Ms Bullock said the Australian economy was overall in a “good place”.
“We have a good unemployment rate so far. We’re back in the inflation band,” he said.
Ms Bullock said businesses were accounting for a larger share of economic growth than before and growth in the public sector was starting to slow.
The RBA boss also faced questions about government spending, energy prices and housing policy during his appearance before the Senate economics committee.
Criticizing the federal government’s policy of allowing first home buyers to take out mortgages with just a five per cent deposit, Ms Bullock said the central bank had not produced any modeling of the measure but acknowledged it would likely boost house prices.
“It is possible that house prices will be slightly higher than normal in the short term,” he said.
Ms Bullock also said borrowers buying property through the scheme could be exposing themselves to higher levels of risk in some areas.
“In such a situation, borrowers will face higher repayment costs and will take this into account when deciding how much to borrow, whether to take out a loan with a small deposit or to wait a little longer,” he told the committee.
“If housing prices drop (and) they have to sell, they may not be able to afford the cost of the loan.”
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