Price rises in Australia’s services sector remain difficult to contain despite the national economy sitting in a good position, the central bank chief warns.
Inflation is at 2.8 per cent according to the latest monthly reading, which is at the upper end of its target range of two to three per cent.
But Reserve Bank governor Michele Bullock says risks remain in the services sector, where inflation is yet to be fully tamed.
“In Australia, like many countries overseas, services inflation does remain a little sticky,” she told a parliamentary hearing in Canberra on Friday.
“It’s being offset by slightly lower goods inflation, but services inflation is still up around three per cent.”
The services sector, which includes areas like education and health care and professions like hairdressing, accounts for a large slice of economic activity.
Despite her concerns, Ms Bullock said Australia’s economy was generally in a “good spot”.
“We’ve got a good unemployment rate so far. We’ve got inflation back in the band,” she said.
Ms Bullock said the businesses were driving a greater share of economic growth than before, and growth in the public sector was starting to ease off.
The RBA boss also faced questions about government spending, energy prices and housing policy during her appearance before the Senate economics committee.
Grilled about the federal government’s policy of allowing first-home buyers to get a mortgage with only a five per cent deposit, Ms Bullock said the central bank hadn’t produced any modelling on the measure but conceded it would likely push up house prices.
“In the short term, it’s possible that housing prices might be a bit higher than they otherwise were,” she said.
Ms Bullock also said borrowers who buy a property through the scheme could be exposing themselves to higher levels of risk in some areas.
“Borrowers in such a situation will face higher repayment costs and they’ll take that into account when they’re deciding how much to borrow, and whether to get in with a small deposit or wait a bit of time,” she told the committee.
“It’s possible they may not be able to recover the cost of the loan if the housing prices decline (and) they need to sell.”
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