Investing.com - The Reserve Bank of Australia (RBA) is relying heavily on economic indicators to determine the course of future interest-rate increases, according to Governor Philip Lowe. His statement came just before monthly data revealed an acceleration in inflation rates.
Lowe mentioned that factors such as unit labor costs, global economic conditions, inflation expectations, and consumer spending will influence any forthcoming adjustments to the current 3.85% cash rate. Shortly after his remarks, a report showed a higher-than-expected increase in the monthly consumer price index at 6.8%, compared to 6.4% in March.
Market uncertainty regarding RBA's policy meeting led to fluctuations in government bond yield and stock market declines. Despite recent tightening measures, Lowe affirmed that monetary policy remains restrictive but effective.
Earlier this month, concerns over potential inflation surprises stemming from a tight labor market prompted RBA officials to raise the cash rate unexpectedly to an 11-year high; however, their forecasts indicate that inflation will only reach the upper limit of their target range by mid-2025.
April's monthly inflation figures were affected by the termination of a fuel subsidy program introduced last year which influenced annual numbers significantly; underlying inflation was recorded at 6.5%. This development adds complexity as RBA policymakers evaluate Australia's economic outlook amid slowing consumer spending and employment growth along with weakening business conditions.
According to Lowe, it is crucial not to be complacent about taming rising prices: "We won't be declaring victory prematurely." The latest CPI report highlighted major contributors such as housing expenses increasing by 8.9%, food and non-alcoholic beverages rising by 7.9%, and transport costs growing by 7.1%.
While acknowledging both upside and downside risks associated with policymaking decisions amidst international developments related primarily to inflation, Lowe emphasized the importance of remaining vigilant and attentive.