Reserve Bank of Australia governor Philip Lowe has forecast wage growth to hit 3 per cent in 2023, signalling the conditions for an interest rate rise will be in place next year and that rate increases are doubtful in 2022.
While underlying inflation is now firmly in the mid-range of the RBA’s 2–3 per cent target band and is set to move higher, governor Philip Lowe said
In particular, he highlighted the bank’s intention to wait and see how various pandemic related supply-side problems resolve and the effects on prices, and also whether consumption patterns normalise over the year.
“We will also be looking for further evidence that labour costs are growing at a rate consistent with inflation being sustained within the target range,” Dr Lowe said in a speech to the National Press Club in Sydney. “We expect this evidence to emerge over time, but it is unlikely to do so quickly.
“The board is prepared to be patient as it monitors the evolution of the various factors affecting inflation in Australia,” he added.
But while previously pointing to wages growth at 3 per cent or higher as a key determinant of “sustainability”, Dr Lowe said the bank did not have a “specific definition as to what ‘sustainably in the target range’ means”.
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