Sustained below target inflation is a deliberate policy outcome that has resulted from the RBA keeping interest rates too high for too long.
The RBA Governor has acknowledged this in a round about way, with a willingness to accept low inflation for the purpose of achieving financial stability, which curiously remains undefined, or at least is a moving target.
Had the RBA cut interest rates to around 0.5 per cent a few years ago, as the other credible central banks around the world did, Australia’s inflation rate would no doubt be in the band and picking up, the unemployment rate would be lower and wages would be accelerating.
Alas for Australia, the unemployment only last month dropped below 5.25% for the first time in 6 years while the unemployment rate in countries with pragmatic and consistent central banks such as the US, UK and Canada have seen unemployment rates drop to multi-decade or record lows and there are signs of a clear pick up in wages.
Let’s hope the RBA comes to its senses before too long and has a policy framework that sees it embrace its inflation target.