The extraordinary COVID-19 rebound driving unemployment towards 50-year lows will soon make the economy bigger than it was forecast to be without a pandemic, says the Reserve Bank of Australia.
The strength of the local recovery, combined with lingering disruptions, also has many businesses straining to keep pace, as they struggle to find and retain staff, and secure the materials they need. Putting COVID-19 firmly in the rear-view mirror would boost confidence and consumption, and investment would further improve that outcome.
Headline inflation will peak at 3.75 per cent in the middle this year, just 0.25 percentage points above the current rate and well below international levels, including the US where CPI is running at 7 per cent. Most businesses have no intention of lifting wages beyond 2-3 per cent over the next 12 months and will instead offer one-off incentives to attract talent, the RBA said following feedback from its business liaison program.“For most other industries, there was little evidence that wages were rising beyond the relatively subdued rates of growth seen in the years leading up to the pandemic.”
Dr Lowe revealed earlier this week that underlying inflation – which excludes volatile items and large price movements, and is the bank’s preferred measure of prices – will peak at 3.25 per cent about the same time that headline inflation peaks, and then will ease below 3 per cent.