Australia’s consumer and business confidence has softened in the wake of the recent oil price shock, though overall economic activity shows little evidence of slowing, Reserve Bank of Australia Assistant Governor Sarah Hunter said Wednesday. Speaking about supply shocks, she cautioned that central banks cannot always “look through” such disruptions. If inflation expectations become unanchored, she warned, restoring price stability may require “some period of low inflation and higher unemployment.”
Hunter emphasized that, although supply shocks involve difficult policy trade-offs, they do not lessen the imperative of keeping inflation low and stable. She reiterated that the Board “will continue to act as needed to ensure inflation returns to target and the labour market to sustainable full employment.”
The RBA has lifted its cash rate three times this year to 4.35% in response to the global energy shock associated with the war involving Iran. Policymakers kept rates on hold in June but maintained that further tightening remains on the table.
