RBA Minutes Of March Policy Meeting: Would look through “transitory fluctuations” in inflation

Reuters reported on the Reserve Bank of Australia's Minutes.

''Recent increases in commodity prices were unlikely to translate into a sustainted rise in inflation unless labour markets tightened significantly.''

''Wages growth would need to be "materially higher" than it is for inflation to pick up, a major reason why "very significant" monetary support will be needed for some time yet, the minutes showed.''

''Inflation expectations have surged in recent weeks, with a rapid spike in global bond yields implying central banks, including in Australia, would raise rates earlier than expected.''

''The minutes showed members did not agree with the aggressive market pricing.''

"The international experience prior to the pandemic had underscored that a sustained period of tightness in labour markets would be needed in order to generate increases in wages growth, and even then, would put only limited upward pressure on consumer price inflation," the minutes showed."

''Even if wages growth did pick up, it was also possible that corporate profit margins in some economies could absorb an increase in labour costs before firms passed such costs through to final consumer prices."

''That is one of the key reasons why the RBA left rates at a record low 10 basis points earlier this month and reaffirmed its three-year yield curve control target at that level.''

''The RBA does expect progress to be made in reducing spare capacity though it would take some time before the labour market is tight enough to generate pay hikes consistent with achieving its 2% to 3% inflation target.''

''This was not likely to occur before 2024 at the earliest, the minutes showed, a strong signal policy will remain stimulatory for a long time to come.''

''The RBA expects annual consumer price inflation to briefly rise to the top-end of its target band around the middle of the year as a result of the reversal of some pandemic-related price reductions. In underlying terms, however, inflation was expected to remain below 2% over both 2021 and 2022.''

Market implications

There has been no market reaction to the minutes besides a few pips to the upside in AUD/USD.