RBA Stagflation Risk Grows as Growth Slows and Inflation Persists

The Reserve Bank of Australia (RBA) may be forced to make tough choices as the country's growth rate is expected to stall. According to HSBC chief economist Paul Bloxham, the RBA could face a prolonged period of stagflation if it doesn't act quickly.

Bloxham stated that it's difficult to see how the RBA can stay near full employment and still get inflation down to its target rate. With growth weakening and inflation remaining too high, the RBA may need to accept a slow economy for an extended period to bring down prices.

Ahead of Wednesday's national accounts figures, Bloxham warned that the narrow path of bringing down inflation without crashing the economy is getting more difficult to achieve. He also noted that Australia's productivity growth has been weak for a sustained period, which has lowered its 'speed limit' for economic growth.