The final deflation in retail trade, weak wage growth and the lowest rental growth since the mid-1990s have all contributed to the country's disinflationary impulse in recent years, said Reserve Bank Governor Guy Debelle.
In a speech on Wednesday to The Economic Society of Australian in Brisbane, Dr. Debelle attempted to explain the disinflationary pulse of the economy over the past three years, which has contributed to the breaking of official rates with a historical low of 1.5 percent. .
Since 2015, the consumer price index has increased by 1.8 percent annually, compared with an average of 2.5 percent since the introduction of the target range of 2-3 percent in the early 1990s.
The recent fall in inflation has been broadly supported, said Dr. Debelle: over the past quarters, more than 80 percent of the basket of goods and services of the national statistician had inflation of less than 2 percent.
"Important drivers for recent, lower outcomes are retail competition, historically low rental hikes, low wage growth and slower growth in some government-regulated prices," he said.
"We expect most of these other forces that have contributed to the recent low rate of inflation to decline, but there is uncertainty about how long they will continue, and we would like to have more confidence that inflation will be maintained in a pace that is consistent with the target. "
Dr. Debelle explained how in the last few years there has been an outright deflation in the retail trade: from 2015 onwards, prices fell on average by 0.1 percent.
Since 2010, retailers have been less willing and able to pass on higher import prices to customers, and although slower growth in consumer spending has played a role, "it is the structural changes that are going on in retail that are putting prices under pressure, " he said.
These structural changes include the increasing popularity of online shopping and the increased competition from offshore players, on the ground and on the internet.
"How retail competition takes place in the coming period is one of the uncertainties about the bank's inflation forecast," said the deputy governor.
Although the margins of retailers have already been squeezed by the arrival of international players, "there are other newcomers who only get a foothold, suggesting that, at the very least, they still consider the current level of margins to be attractive, despite the decline in recent years, our expectation is that these forces still have a way to implement. "
Rents have also been an important factor in balancing total inflation. The pace of rent inflation has been falling since 2008 and the annual figure is now around the lowest since the mid-nineties.
Dr. Debelle attributed this rental disinflation to "a mix of developments on the supply and demand side".
The boom in housing construction has increased the supply of rented housing in such a way that the growth of the housing stock since 2014 has outpaced the population growth, he said.
"We expect the pace of rental inflation to gradually increase in the coming years," he said, noting a decline in vacancy rates in the past year and an increase in the growth of newly advertised rents.
"However, it will take some time before the new rental prices have a substantial effect on the rental stock that is recorded in the CPI."
Services account for more than a third of the CPI basket, divided over so-called & # 39; market services & # 39; such as hairdressers and eating out, which are influenced by domestic factors, including wages and utilities, and managed prices & # 39; for services such as energy and childcare, which are influenced by government decree.
Dr. Debelle explained how "the outlook for inflation of market services is intrinsically related to the outlook for wages", and he reiterated the central bank's line that "as the labor market tightens, wage growth should gradually pick up" – taking market service inflation with it.
"However, as we have noted on several occasions, there is great uncertainty about the scale of unused capacity on the labor market and how quickly a reduction of spare capacity would lead to higher wage and price inflation."
"It is possible that the unemployment rate would fall faster than expected and the wage growth could therefore increase more strongly.As alternative, it could be possible that the flow of new employees to the labor market could remain stronger than normal, so that the unemployment rate decreases more slowly than we expect and the pressure on wages can take longer. "
In its recent statement on monetary policy, the bank lowered its inflation forecast for this year from 1.75 percent to 1.75 percent. This means that lower prices for government-managed goods such as utilities, education and childcare would lead to a fall in the total price pressure.
Dr. Debelle has expanded these developments. The RBA expects energy prices to fall in the coming quarters, said Dr Debelle, and "how this is emerging in the coming period is another significant uncertainty for the bank's inflation forecast".
The monetary policy board of the RBA then meets on 4 September.