Reserve Bank governor Michele Bullock warns demand for haircuts,dentists and dining out is keeping inflation high.Credit:Wolter Peeters
She warned that the growing prices of services,such as haircuts,were a substantial concern as they were being supported by strong demand.
“Hairdressers and dentists,dining out,sporting and other recreational activities – the prices of all these services are rising strongly. This reflects domestic economic conditions and is an indication that aggregate demand is sufficiently greater than aggregate supply to sustain these price increases,” she said.
The bank this month took the official cash rate to a 12-year high of 4.35 per cent. Since starting to tighten monetary policy in May last year,the cumulative impact of its rate rises have increased the repayments on a $600,000 mortgage by $1600 a month.
Bullock,speaking in Sydney,said while supply chain issues had initially pushed up inflation,it was now clear that local demand factors were the driving force behind higher consumer prices.
Signalling further interest rate increases were an option,Bullock said it would take time to deal with the “homegrown and demand-driven” inflation pressures pulsing through the economy.
“It took only three quarters for inflation to fall from 8 per cent to 5.5 per cent as the supply side issues eased,and there is some more to go there. But we expect it to take another two years for inflation to fall that much again and move below 3 per cent,” she said.