October 4, 2019 / 3:25 AM / 20 days ago

Australia central bank grapples with forecasting impact of retail competition on inflation

FILE PHOTO: Pedestrians walk past the Reserve Bank of Australia Building in Sydney's central business district, May 5, 2016. REUTERS/Jason Reed/File Photo

SYDNEY (Reuters) - Heightened retail competition in Australia has had a “profound” impact on pricing models for inflation and is a key issue for policymakers when compiling forecasts, a senior central bank official said on Friday.

In recent years, major global retailers including Amazon.com (AMZN.O) have entered Australia, leading to price wars, a major factor causing tepid inflation.

Underlying inflation has undershot the Reserve Bank of Australia’s (RBA) 2-3% medium-term target for more than three years now and was a key reason the RBA chopped rates to a record low 0.75% for the third time this year on Tuesday.

“After a long period where retail prices tended to rise at roughly the same rate as inflation generally, for the past decade or so, these prices have been flat to falling,” RBA Assistant Governor Luci Ellis said in a speech in Geelong, about 75 kilometers (46.6 miles) southwest of Melbourne.

“This is a big change in pricing behavior for some important parts of the Consumer Price Index,” she added.

“The question of how long this shift will last has been a key issue for us as we compile our inflation forecasts.”

Reporting by Swati Pandey; Editing by Kim Coghill

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