RBA interest rates: Michele Bullock is walking a tightrope between inflation and jobs

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I had thought that a further policy rate hike was unlikely. That was based on a view that underlying weakness in activity growth will show in a weaker labour market and allow a more confident projection of inflation declining in a timely fashion toward target. That forecast is likely to be exceeded when the June quarter CPI is released on July 31, and non-trivially so, with a “four handle” figure – 4 per cent or more – a distinct possibility.

If there is a lesson to be drawn from the intractable inflation of the 1970s, it is that too great a compromise on the part of a central bank in its response to an inflation threat only heightens the risks of a more damaging macroeconomic dislocation down the track.

In the Australian context, the arrangements attached to wage-setting and industrial relations regulation have complicated the RBA task, and the Future Made in Australia measures may well do so too.Australian Financial Review’s

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