IMF’s inflation warning
The Reserve Bank of Australia (RBA) has been warned to raise interest rates quickly if leading indicators suggest that domestic demand will not slow as expected or the outlook for inflation deteriorates.
The warning was issued by the International Monetary Fund (IMF) in its statement ‘Australia — 2008 Article IV Consultation’.
While giving Australia’s macroeconomic policies, structural reforms and resilience to the current global financial turmoil a tick of approval, the IMF did show concern with the country’s underlying inflation, which is the highest in more than a decade, saying this presented the Government with a “significant challenge”.
It warned that further increases in energy prices and capacity constraints, particularly in the mining and housing sectors, could push the nation’s wage and consumer price index (CPI) inflation higher than originally expected.
The IMF was also less upbeat with Australia’s export markets, which could suffer as a result of the country’s high exchange rate and a slump in global demand.
Additional stress could also come from continued turmoil in international financial markets, which could result in a further tightening of credit conditions and an increase in banks’ funding costs. The IMF was also bearish in its appraisal of the country’s agricultural sector, with output unlikely to rebound from the drought as first predicted.
“A firm monetary policy stance is essential for keeping medium-term inflation expectations well anchored,” the IMF said.
“The risk that wage inflation will rise further if CPI inflation persists at current levels calls for the RBA to maintain a tight policy stance until it is clear that inflation will abate.”
AUTHOR
Mike Taylor
Recommended for you
ASIC has cancelled a Sydney AFSL for failing to pay a $64,000 AFCA determination related to inappropriate advice, which then had to be paid by the CSLR.
A former Brisbane financial adviser has been charged with 26 counts of dishonest conduct regarding a failure to disclose he would receive substantial commission payments for investments.
Inefficient data processes and systems mean advisers are spending over half of their time on product implementation and administration at the expense of clients, according to research.
With the regulator announcing its enforcement focus for 2025 last week, law firm Hall & Wilcox examines the areas which have dropped down the list in priority for the regulator.
