Australian energy policy is a significant uncertainty & # 39; for inflation: RBA, Banking & Finance



Wed, August 22, 2018 – 11:25 AM

[SYDNEY] A decade of indecision about Australian energy policy has increased the central bank's assessment of uncertainty as to whether and how much inflation will accelerate, the deputy governor said on Wednesday.

This uncertainty has led to the underpinning of new supply and a sharp rise in energy prices in recent years, Reserve Bank of Australia (RBA) Deputy Governor Guy Debelle said in a speech entitled "low inflation".

However, that trend had reversed now that a large volume of new generation of renewable energy is reducing prices online, which would at least depress inflation in the short term. It was not clear whether the price decrease would persist.

"High and rising prices are usually a signal for market participants to invest in additional supply, but the payout period for new power generation assets is long and uncertainty surrounding energy policy has contributed to a significant underinvestment in new supply," he said in Brisbane. .

A plan for a National Energy Guarantee, aimed at reducing electricity prices and ensuring supplies after a series of power outages in 2016 and 2017, is in a no-man's-land and has threatened the premiers of Malcolm Turnbull.

"How this takes place in the coming period is another important uncertainty for the Bank's inflation forecast," he added.

Earlier this week, Mr. Turnbull weakened his central energy policy, which also included imposing a target for reducing greenhouse gas emissions, a matter that the government has repeatedly divided.

Mr Debelle also noted fierce competition in the country's retail trade, historically low rental growth and the slow pace of wage increases, as other factors weighing on inflation have fallen below the RDA target of 2-3% for more than two years. .

Lukewarm inflation was the biggest reason why the RBA cut interest rates twice to a record low of 1.50 percent in 2016, and has been waiting on the sidelines since then, awaiting a rebound in prices.

"We expect most of these other forces that have contributed to the recent low inflation to decline, but there is uncertainty about how long they will last," said Mr. Debelle.

"We would like to have more confidence that inflation will be maintained at a pace consistent with the goal."

REUTERS


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