Higher services inflation remains a focus for the RBA

The RBA has consistently highlighted the challenges involved with returning inflation to the target range of 2-3%.

Headline inflation has reduced at a faster-than-forecast pace, falling from a peak of 7.8% at the end of 2022 to 4.1% annually, while the latest quarterly inflation reading, at 0.6%, is the lowest since March 2020.

However, beneath the headline result, it is clear that services inflation remains stubbornly high, reflecting tight labour market conditions but also ongoing growth in services costs such as insurance & financial services (+8.1% annual) and housing costs including rents (+7.3% annual), new builds (+5.1% annual) and utilities (+8.4% annual).

The RBA expects services inflation to decline only gradually, making the timing for a rate cut highly uncertain and dependent on further progress in reducing inflation emanating from the services sector.

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Jason Gwerder
Friday, 22 March 2024

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