Dow Jones Newswires: Australia's central financial institution factors out inflation dangers from overloaded provide chains

SYDNEY – Shortages of goods and materials due to overloaded global supply chains could lead to above-expected inflation, the Australian central bank said.

The Reserve Bank of Australia on Friday confirmed its updated forecast for an annual underlying inflation rate of 2.25% by the end of 2022 and 2.5% a year later. However, she warned that the impact of supply bottlenecks due to port congestion and shipping bottlenecks would be difficult to predict, with potential risks in both directions.

"If global price pressures from supply constraints persist longer than expected, the extent of the pass-through to domestic prices could be greater than expected and lead to higher inflation results in Australia," the RBA said in its quarterly monetary policy statement.

“However, it is also possible that global demand for goods will decline for the next year or so, around the same time that the supply of goods comes online; This could lead to a reduction in price pressures in global commodity markets and result in less imported price pressures in Australia, ”it said.

The central bank noted signs that supply bottlenecks are limiting some industry activities in other countries.

The most recent upward scenario included an annual inflation rate of more than 3% through the end of 2023 and an unemployment rate of around 3.25%. The downside scenario, which could include ongoing supply chain constraints and further constraints from Covid-19, would result in inflation falling below 2% and an unemployment rate of up to 5.5% over the same period.

Many economists have suggested that inflation could rise faster than expected by the RBA, which updated its forecasts this week while keeping the cash rate at a record low of 0.1%. Many think that the economic recovery from the pandemic could lead the RBA to hike rates sooner than expected.

The central bank admitted this week that an improving economy means it could raise rates in 2023 instead of 2024 as previously suggested.

On Friday, the RBA confirmed its central scenario for the country's economy to grow by 5.5% annually in 2022 and 2.5% in 2023. Three months ago, it forecast annual GDP growth of 4.25 in 2022 %. That compares with the growth of 4.0% that is still expected in 2021.

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