RBA Dep Gov Bullock Says Rising AUD Putting Downward Pressure On Prices
- Published on
- 06 Apr 2022, 08:44 PM
By Sophia Rodrigues
(Sydney, April 6, 2022)—The rising Australian dollar exchange rate is putting downward pressure on prices and is one of the reasons why inflation in Australia is expected to not be as high as in some advanced countries, the Reserve Bank’s new deputy governor Michele Bullock said Wednesday.
“Our exchange rate is appreciating. It is also keeping a bit of pressure on prices,” Bullock said.
Bullock was answering questions to the Parliament’s Economics Legislation Committee in her first public appearance since taking over as deputy governor last Friday.
She was joined by assistant governor Christopher Kent.
Bullock was asked why the RBA is confident that inflation won’t rise beyond 4.5% when other countries are facing significantly stronger inflationary pressures. She quoted the same reasons Governor Philip Lowe has said several times in the recent past – lower energy prices and slow wages growth.
A new addition to this commentary was the rising exchange rate, and it’s the first time in a long time the RBA has commented on the impact of the appreciating exchange rate on inflation.
CB-Intel wrote an article earlier Wednesday on the same theme.
Bullock also pointed out that Australia’s largest trading partner China is not experiencing a lot of inflation.
Kent provided more insights into RBA’s thinking and the hawkish shift in Tuesday’s cash rate statement during the testimony.
He said the outlook is now for a further rise in inflation following the Russian invasion of Ukraine, with an additional factor being China’s Covid policy that would cause further disruptions to supply chains.
“The other feature we are seeing is the potential at least in China for further disruptions to supply chain issues as they struggle to manage their Covid outbreaks,” Kent said.
The statement acknowledged the higher inflation risks, and the RBA is now looking for clarity on supply chain issues and more pickup in wages growth at low unemployment levels, Kent said.
Bullock said the outstanding question for RBA was whether there was a price level shift or an underlying inflation shift. But now, it thinks there are some underlying inflation pressures from some businesses raising prices and consumers expecting higher wages.
Asked about the impact of the expansionary federal budget on inflation, Kent said the RBA will update its forecasts in May. The expansionary budget is one of several factors that will be considered when the numbers are updated.
The impact of the Ukraine war would have the most significant effect on revision, Kent said. Other factors affecting inflation would be recent flooding in New South Wales that is pushing up food prices.