Inflation Outpaces Forecasts in Australia and South Korea
Policy makers in Australia and South Korea warned that inflation was rising faster than expected, and the head of Australia’s central bank said it would take years for it to return to normal levels.
Reserve Bank of Australia Gov.
Philip Lowe
on Tuesday said inflation in Australia is on track to rise to 7% by the end of the year, higher than the bank’s last forecast in May when it expected inflation to peak at around 6%. Mr. Lowe added that it would take years before inflation returns to the central bank’s target range of 2%-3%.
In South Korea, that country’s central bank said inflation is poised to top its earlier forecast of 4.5%, and that later this year it could exceed the 4.7% pace recorded during the financial crisis in 2008. The bank said it expected inflation to be above 5% for some time amid supply constraints for crude oil and grain—two commodities where markets have been disrupted following Russia’s invasion of Ukraine.
The warnings illustrate how inflation is challenging policy makers around the globe, even in countries where historically inflation has been kept under control. Australia, where commodity exports help to underpin the economy, enjoyed stable inflation and recession-free economic growth for decades prior to the pandemic.
“For a number of years, inflation was below target and now it is above,” Mr. Lowe said in a speech at the American Chamber of Commerce in Australia. “What is important here is that we chart a credible path back to an inflation rate of 2% to 3%.”
Philip Lowe, governor of the Reserve Bank of Australia.
Photo:
Brent Lewin/Bloomberg News
Price rises in Asia and the Pacific region haven’t been as severe as in the U.S. and Europe, where inflation has risen above 8%. Still, officials are concerned. In Tokyo, Japanese Prime Minister
Fumio Kishida
headed the first meeting on Tuesday of a cabinet-level panel charged with finding ways to tackle rising prices. Overall consumer-price inflation in Japan recently topped 2% for the first time in more than two decades because of high energy and raw-materials costs.
The global inflation surge is driven by a combination of factors: government stimulus meant to prop up economies during the Covid-19 pandemic, supply-chain issues and pent-up demand now that many pandemic-era restrictions have eased. On top of that, Russia’s invasion of Ukraine has caused major disruptions to global markets for energy and food.
In Australia, gasoline prices are up by 37% over the past year, which has added strongly to inflation. The price of new cars has also increased at the fastest rate for many years, while local electricity costs have jumped. Australia’s decision to shut its borders during the pandemic reduced migration and some sectors, including retail and hospitality, are having to offer higher wages to attract workers.
“The expectation across the board is that inflation will get worse before it gets better,” Australian Treasurer
Jim Chalmers
said Tuesday. “This is a really difficult period.”
Mr. Lowe, the central bank governor, expects inflation to moderate in 2023, largely as some of the global issues pushing prices higher, such as surging fuel costs, begin to recede.
He also expects that Australia will avoid a recession even as interest rates are ramped up over the coming months. He pointed out that unemployment is low, labor market participation is high, households have strong savings buffers, and that Australia’s big resources companies are benefiting from high commodity prices.
“Australia has a lot of positives, so we don’t see a recession on the horizon,” Mr. Lowe said. “But if the last two years have taught us anything, you can’t rule anything out.”
—Alastair Gale and Kwanwoo Jun contributed to this article.
Write to James Glynn at [email protected]
Copyright ©2022 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8
Policy makers in Australia and South Korea warned that inflation was rising faster than expected, and the head of Australia’s central bank said it would take years for it to return to normal levels.
Reserve Bank of Australia Gov.
Philip Lowe
on Tuesday said inflation in Australia is on track to rise to 7% by the end of the year, higher than the bank’s last forecast in May when it expected inflation to peak at around 6%. Mr. Lowe added that it would take years before inflation returns to the central bank’s target range of 2%-3%.
In South Korea, that country’s central bank said inflation is poised to top its earlier forecast of 4.5%, and that later this year it could exceed the 4.7% pace recorded during the financial crisis in 2008. The bank said it expected inflation to be above 5% for some time amid supply constraints for crude oil and grain—two commodities where markets have been disrupted following Russia’s invasion of Ukraine.
The warnings illustrate how inflation is challenging policy makers around the globe, even in countries where historically inflation has been kept under control. Australia, where commodity exports help to underpin the economy, enjoyed stable inflation and recession-free economic growth for decades prior to the pandemic.
“For a number of years, inflation was below target and now it is above,” Mr. Lowe said in a speech at the American Chamber of Commerce in Australia. “What is important here is that we chart a credible path back to an inflation rate of 2% to 3%.”
Philip Lowe, governor of the Reserve Bank of Australia.
Photo:
Brent Lewin/Bloomberg News
Price rises in Asia and the Pacific region haven’t been as severe as in the U.S. and Europe, where inflation has risen above 8%. Still, officials are concerned. In Tokyo, Japanese Prime Minister
Fumio Kishida
headed the first meeting on Tuesday of a cabinet-level panel charged with finding ways to tackle rising prices. Overall consumer-price inflation in Japan recently topped 2% for the first time in more than two decades because of high energy and raw-materials costs.
The global inflation surge is driven by a combination of factors: government stimulus meant to prop up economies during the Covid-19 pandemic, supply-chain issues and pent-up demand now that many pandemic-era restrictions have eased. On top of that, Russia’s invasion of Ukraine has caused major disruptions to global markets for energy and food.
In Australia, gasoline prices are up by 37% over the past year, which has added strongly to inflation. The price of new cars has also increased at the fastest rate for many years, while local electricity costs have jumped. Australia’s decision to shut its borders during the pandemic reduced migration and some sectors, including retail and hospitality, are having to offer higher wages to attract workers.
“The expectation across the board is that inflation will get worse before it gets better,” Australian Treasurer
Jim Chalmers
said Tuesday. “This is a really difficult period.”
Mr. Lowe, the central bank governor, expects inflation to moderate in 2023, largely as some of the global issues pushing prices higher, such as surging fuel costs, begin to recede.
He also expects that Australia will avoid a recession even as interest rates are ramped up over the coming months. He pointed out that unemployment is low, labor market participation is high, households have strong savings buffers, and that Australia’s big resources companies are benefiting from high commodity prices.
“Australia has a lot of positives, so we don’t see a recession on the horizon,” Mr. Lowe said. “But if the last two years have taught us anything, you can’t rule anything out.”
—Alastair Gale and Kwanwoo Jun contributed to this article.
Write to James Glynn at [email protected]
Copyright ©2022 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8
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