RBA’s Hunter says inflation expectations have not become de-anchored

Hunter is speaking at the Citi Australia & New Zealand Investment Conference, Sydney

Hunter says the Reserve Bank of Australia is not concerned inflation expectations getting de-anchored in the near-term

• policymakers remained alert to such a risk
• households
  appear to have looked through the recent spike in inflation more
  than the central bank might have expected
• relationship between current wage expectations and
  inflation expectations is relatively weak

More:

• “we’re not currently concerned that expectations
  could become de-anchored in the near term,”
• “But we do think it’s important that we track how
  they’re evolving and that we understand how expectations are
  formed, so we can monitor whether there are any signs of this
  risk materialising in the future.”

Full text:

• Inflation Expectations – Why They Matter and How They Are Formed

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I’ve posted before on inflation expectations:

A concern for central banks is to keep inflation expectations anchored. In a nutshell:

• The argument is that inflation expectations can become self-fulfilling. For example during times of increasing inflation – people see inflation rising so they tend to buy more quickly, thus prompting prices to rise faster. People expect faster inflation (i.e. its ‘unanchored’ … rising quickly)
• On the flipside, if inflation is either very low or in deflation (i.e. general falling prices), people hold off purchasing ’cause there is no rush if prices are falling, and again the argument is this behaviour can feed on itself and grow as a problem. People expect falling prices to fall harder (‘unanchored’).

The RBA has a much, much more detailed look at inflation expectations and in particular its impact on fixed interest markets, link here. Even just checking out the introduction to the paper gives good educational value.

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As a ps. Is it unanchored or deanchored?

This article was written by Eamonn Sheridan at www.forexlive.com.