At the Reserve Bank of Australia’s first monetary policy meeting of 2022, governor Philip Lowe said that while the Omicron outbreak had affected the economy, it had not derailed the economic recovery.
“The Australian economy remains resilient and spending is expected to pick up as case numbers trend lower,” Mr Lowe said.
“The RBA's central forecast is for GDP growth of around 4.25% over 2022 and 2% over 2023. This outlook is supported by household and business balance sheets that are in generally good shape, an upswing in business investment, a large pipeline of construction work, and supportive macroeconomic policy settings. The main source of uncertainty continues to be the pandemic.”
The RBA governor noted that the labour market had recovered strongly, with the unemployment rate declining to 4.2% in December.
“Hours worked are estimated to have declined significantly in January due to the Omicron outbreak, but high numbers of job vacancies suggest further gains in employment over the months ahead,” he said.
Commenting on inflation, Mr Lowe said the headline CPI inflation rate was 3.5% and was being affected by higher petrol prices, higher prices for newly constructed homes, and disruptions to global supply chains.
“One source of uncertainty is the persistence of the disruptions to supply chains and distribution networks and their ongoing effects on prices. It is also uncertain how consumption patterns will evolve and how this will affect the balance of supply and demand, and hence prices,” he said.
“As the board has stated previously, it will not increase the cash rate until actual inflation is sustainably within the 2 to 3% target range. While inflation has picked up, it is too early to conclude that it is sustainably within the target band. There are uncertainties about how persistent the pick-up in inflation will be as supply-side problems are resolved.
“Wages growth also remains modest and it is likely to be some time yet before aggregate wages growth is at a rate consistent with inflation being sustainably at target. The board is prepared to be patient as it monitors how the various factors affecting inflation in Australia evolve.”