RBA ‘holding out hope’ underlying inflation will fall

Former Howard government minister Peter McGauran says the Reserve Bank is “holding out hope” underlying inflation will fall from 3.5 per cent. The Reserve Bank held the cash rate at 4.35 per cent at its meeting in December. “The Reserve Bank is concerned about underlying inflation, and here they look at the rise in cost of service and wages,” Mr McGauran told Sky News Australia. “If full employment begins to ease and unemployment increases, well, wages pressure reduces, but not overnight. “The Reserve Bank admits that the headline inflation rate is now within the band of two to three per cent inflation, but the underlying inflation is 3.5 per cent, so, yes, they’re just holding out the hope that eventually an increase in unemployment will lead to possible interest rate decreases.”