RBA's Bullock Says Rate Hikes, Cost Of Living Crisis To Bring Inflation Down

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Reserve Bank of Australia Deputy Governor Michele Bullock said the interest rate hikes together with the cost of living pressures are set to weigh on consumption and cool demand, thus help to bring inflation back to the target.

Although inflation forecasts were revised up a little, there are good reasons to believe that the peak of the inflation is approaching, Bullock said in Sydney on Wednesday.

The RBA forecast headline inflation to peak around 8 percent at the end of 2022 and to remain above the target bank through 2024.

The central banker observed that inflation is too high and increasingly broad based.

After inflation peaking at the year end, Bullock expects rising interest rates and cost-of-living pressures to drive a moderation in consumption that brings demand more in line with supply.

This should, in turn, bring inflation back down to the target over the next couple of years, she noted.

She said forecasting is difficult given the unusual forces bearing on the outlook. There are uncertainties surrounding the behavior of households and businesses and the potential for unforeseen shocks.

This is the reason why the central bank continually reviewing the incoming data and testing the forecasts, said Bullock.

The policymaker reiterated that the board's priority is to return inflation to the 2-3 percent band over time and further increases in interest rates will be required to meet this objective. The size and timing of future increases, however, will depend on the data, she added.

The Reserve Bank had raised its key cash rate target by a quarter point for the second straight meeting this month after half-a-percentage point increases in each of the last four meetings. The benchmark rate reached 2.85 percent, the highest since 2013.

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