Interest rates will rise and fall more often to cope with increasingly erratic inflation in the coming years, with Reserve Bank Governor Philip Lowe warning that climate change, an aging population, the breakdown of supply chains and overhaul of the energy grid will exert upward pressure. about prices
RBA Governor Phillip Lowe.Credit:Oscar Colman
Speaking in Sydney on Tuesday night, Lowe said events of the past year had revealed that problems on the supply side were going to make inflation more variable, which would then make it even more difficult to set interest rates. .
He said climate change, which would alter food and commodity prices, the world’s aging workforce, the post-COVID-19 shift toward deglobalization as countries tried to avoid chain failures of supply and the money needed to improve energy systems would be fed by fluctuating rates of inflation
These four supply-side developments are major issues that are likely to affect the Australian business environment for years to come.
They are also likely to affect inflation dynamics here and elsewhere, leading to greater variability in inflation from year to year.
With the OECD forecasting Australia’s growth rate to more than halve over the next two years due to the turmoil sparked by the war in Ukraine, Lowe said the bottom line for the federal budget would have to improve dramatically to ensure that the country can move quickly to meet the economic challenges ahead.