SYDNEY — Shortages of goods and materials stemming from congested global supply chains could result in higher-than-anticipated inflation, Australia’s central bank has said.
The Reserve Bank of Australia on Friday confirmed its updated forecast for an annual underlying inflation rate of 2.25% at the end of 2022, and of 2.5% a year later. Yet it cautioned that the impact of supply constraints amid port congestion and shipping shortages was hard to predict, with potential risks in both directions.
“If global price pressures from supply shortages persist for longer than expected, the extent of pass-through to domestic prices could be stronger than envisaged and lead to higher inflation outcomes in Australia,” the RBA said in its quarterly statement on monetary policy.
“However, it is also possible that global goods demand eases over the next year or so, around the same time that more goods supply comes online; this could see price pressures in global goods markets dissipate and feed through to lower imported price pressures in Australia,” it said.
The central bank noted signs that supply constraints are limiting some industry activity in other countries.
Its latest upside scenario included annual inflation of more than 3% by the end of 2023 and an unemployment rate of about 3.25%. The downside scenario, which could include continued supply-chain constraints and further Covid-19 restrictions, would result in inflation slipping below 2% and an unemployment rate of up to 5.5% over the same period.
Many economists have suggested that inflation could rise more quickly than anticipated by the RBA, which updated its forecasts this week while holding the cash rate at a record-low 0.1%. Many think that the economy’s recovery from the pandemic could push the RBA to raise interest rates earlier than it anticipates.
The central bank this week acknowledged that an improving economy means it could increase rates in 2023, rather than in 2024 as it had previously suggested.
On Friday the RBA confirmed its central scenario for the country’s economy to expand at an annual rate of 5.5% in 2022 and by 2.5% in 2023. Three months ago, its 2022 forecast was for annual GDP growth of 4.25%. That compares with the 4.0% growth it still expects in 2021.
This post was originally published on Market Watch
