RBA Wants Aussies to Remain Anxious About Inflation

The Reserve Bank of Australia wants Australians to remain anxious about inflation, even though it has fallen to levels last seen before the Iran war pushed up crude oil prices. The bank's chief economist, Sarah Hunter, is worried that if consumers don't cut their spending in anticipation of another rate hike, higher expectations could lead to higher prices for longer.

Inflation has consistently been above the Reserve Bank's 2-3 per cent target for almost a year, and raising interest rates again would only crush an already weak economy. The bank's assistant governor expressed concern about the Middle East conflict pushing up construction costs, which are already soaring by 5.8 per cent.

Dr Hunter admitted that higher crude oil prices make it hard for the Reserve Bank to raise interest rates again during a time of weak economy activity. She said 'Inflation is too high, the cost of living is going up faster than people want it to, than people are comfortable with.' The RBA's monetary policy board is grappling with a classic economic Catch 22.