SYDNEY, Oct 22 (Reuters) - The Reserve Bank of Australia is closely watching a spike in inflation, with Governor Philip Lowe saying on Friday he did not think the rise would be sustained unless it led to sustainably higher wages growth.
Headline inflation rates around the world have risen as economies start to reopen after the COVID pandemic, with supply-chain disruptions adding to the price pressures, and some central banks have begun tightening monetary policy.
Lowe, speaking at a conference hosted by the Universidad de Chile, said policymakers broadly understood why the spike in inflation was occurring. Whether it turned into a permanent lift depended on whether it fed through to the labour market.
“Is it going to reset expectations about what type of wage growth people should get, or will the spike dissipate and we will go back to the type of labour market outcomes we’ve seen before the pandemic?” Lowe said.
“So there is quite a lot of uncertainty around that issue, but we are watching very carefully.”
Earlier this month, the RBA held interest rates steady at a record low of 0.1% and reiterated its view that sluggish wages growth and underlying inflation meant it did not expect to be increasing the cash rate before 2024.
June quarter data showed annual headline inflation in Australia running at 3.8%, the fastest in almost 13 years, but the RBA’s underlying measure of prices rose just 1.6%.
September quarter inflation data will be released next week.
Lowe was taking part in a panel discussion at a conference on central bank independence, mandates and policies. He joined the conference online. (Reporting by John Mair; editing by Richard Pullin)
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