Services price inflation in Australia continues to be high and will only cool down gradually, according to the Reserve Bank of Australia (RBA), as reported in an article by Bloomberg.

In a speech, Marion Kohler, the head of economic analysis at the RBA, said that firms in the reserve bank’s liaison program continued to face pressures due to higher labour and non-labour costs such as professional services, logistics, and insurance.

“Decline in services price inflation is necessary for the inflation target to be achieved over time,” said Kohler.

Notably, the RBA is aiming to see the midpoint of a 2-3% inflation range. According to the latest forecast of the RBA, core inflation will further ease to 3.1% in December, from the 4.2% seen at the end of 2023. However, it is expected to only fall to the target band of the reserve bank in December 2025 with inflation hitting the target 2.5% midpoint in 2026.

Kohler said that the outcome is expected to occur even with the effect of the bank’s 13 rate hikes beginning to fade as GDP growth accelerates later this year.

“This forecast is underpinned by a pick-up in consumption growth as real household income growth turns positive again this year,” said Kohler.

Governor Michele Bullock has stated that the rate-setting board has yet to rule out the continued tightening of monetary policy.

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