The Reserve Bank of Australia (RBA) has acknowledged that there are many uncertainties in its forecasts as the nation strives to bring inflation down.
In its latest Statement on Monetary Policy, the RBA said that it had revised down its forecasts for both inflation and economic growth in the near term.
The RBA now expects inflation to be at 8 per cent in the December quarter, and stay above the forecast of 2-3 per cent until 2025.
Despite the downgrades, the RBA still expects inflation to return to within its target range of 2-3 per cent over the next two years.
However, it acknowledged that there are many uncertainties surrounding this forecast.
“The outlook for inflation remains highly uncertain, with a number of downside risks,” the RBA said.
“These include the possibility that wage growth remains low for longer than expected, or that the pass-through of higher energy prices to other prices is greater than forecast.”
The RBA also said that the recent surge in iron ore prices could add to inflationary pressures in the economy.
“If sustained, the increase in iron ore prices would add to inflation over the next year or two,” the RBA said.
“However, the outlook for inflation is also uncertain given the high degree of spare capacity in the economy.”
The RBA’s decision to leave interest rates on hold at 1.50 per cent at its meeting earlier this month was widely expected.
However, the central bank signalled that it could start to raise rates sooner than previously thought if inflation picks up.
