Rents, energy driving inflation: RBA chief


2022-11-28 06:10:29

Soaring rents and energy costs pose a challenge for Australia’s inflation crisis, with the head of the Reserve Bank urging action to boost power and housing supply.

RBA governor Philip Lowe said addressing these supply side pressures would help bring down inflation, with around half of the inflationary pressures in the market from aggregate demand and the other half from supply side shocks.

Addressing a Senate committee on Monday, Dr Lowe said boosting the supply of gas and electricity would help the central bank bring inflation back within the target range of two-three per cent.

The Albanese government has all but committed to implementing some kind of price cap mechanism to keep energy costs contained, but Dr Lowe declined to weigh in on the preferred mechanisms to bolster the supply of gas and electricity in the market.

The head of the RBA also pointed to rents as a key contributor to the consumer price index, noting that a boost in migration was colliding with fairly modest increases in housing supply.

While he recognised boosting housing supply would do little to solve short-term affordability pressures, he said boosting supply over the medium term would help manage inflation that’s expected to stick around at elevated levels for a few years.

Dr Lowe also apologised to Australians who took out a mortgage based on conditional forward guidance provided during the pandemic that predicted interest rates to remain at record low levels until 2024.

“The community thought it was clear we weren’t raising rates until 2024,” he said.

“We didn’t communicate the caveats clearly enough … they didn’t hear the conditionality, and that was partly our fault.”

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