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Skills shortage an inflation risk: RBA

Melissa Jenkins  |  15 Aug 2017Text size  Decrease  Increase  |  
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MELBOURNE - [AAP] Some employers are finding it tough to attract skilled workers, which could spark faster-than-expected wages growth and drive inflation, the Reserve Bank of Australia says.

Minutes from the RBA's August meeting--at which it decided to leave the cash rate unchanged at 1.5 per cent--reveal concerns among board members that a skilled labour shortage might lift wages more quickly than expected and fuel inflation.

"Information from liaison indicated that some employers were finding it harder to attract workers with particular skills," minutes from the meeting read.

"If this were to broaden, wage growth could increase more quickly than forecast, which would see inflationary pressures also emerge more quickly."

The board also said wage and price inflation had not lifted by as much as expected in other economies already close to full employment, which raised the possibility that low inflation in Australia might also persist longer than forecast.

Underlying inflation was tipped to be close to 2 per cent in the second half of this year and edge higher over the 2018 and 2019.

The RBA cited a high Australian dollar, rising housing debt and slow income growth as key concerns in its decision to leave rates unchanged.

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The board noted the Australian dollar had risen to levels not seen since 2015 and if it continued to climb that could dampen economic growth.

"Inflation was still expected to increase gradually as the economy strengthened," the minutes read.

"However, a further appreciation of the exchange rate would be expected to result in a slower pick-up in inflation and economic activity than currently forecast."

Following the 1130 AEST release the Australian dollar lifted, rising as high as 78.77 US cents, and was trading at 78.70 US cents at 1219 AEST, slightly up from 78.69 US cents at Monday's close.

The board also noted house prices continue to grow strongly in Sydney and Melbourne and although growth in lending to investors had eased, overall housing credit growth had continued to outpace the slow growth in household incomes.


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