Ian Macfarlane says inflation is unlikely to get back to the long-standing target of 2 per cent to 3 per cent in Australia or the US.
Former Reserve Bank of Australia governor Ian Macfarlane says inflation is unlikely to get back to the long-standing target of 2 per cent to 3 per cent in Australia or the US, and is more likely to settle as high as 5 per cent., and said Australians should brace for interest rates to climb above 4 per cent.“I find it hard to think that it will just come back to 2 per cent.
You can’t allow the marginal mortgage borrower to determine the central banks ability to change interest rates.The high inflationary environment, Mr Macfarlane said, had not been driven by low-interest rates, instead it was a result of an imbalance between supply and demand triggered by COVID-19 logistics disruptions, followed by the war in Ukraine.
“If you start from a position as low as you’ve started from this time, you know you’ve got a long way to go to get back to normal.”The RBA first set the 2 per cent to 3 per cent inflation target in the early 1990s, with the belief that at that level, the country could achieve sustainable growth in output and employment.
“That’s’ the risk. If you could guarantee it would stay at 4 per cent, the world would adjust, but past history suggest when it’s a significant part of people’s thinking, it tends to creep up.”
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