Home Markets RBA’s Dovish Convictions May Be Challenged by Soaring Shipping Costs

RBA’s Dovish Convictions May Be Challenged by Soaring Shipping Costs

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By James Glynn

SYDNEY–The Reserve Bank of Australia’s confidence that interest rates won’t be raised in the next two years is set to be tested as soaring shipping costs and a weaker exchange rate push core inflation back within the target of 2%-3% in 2022.

Marcel Thieliant, senior economist at Capital Economics, said Monday that shipping costs from China to Australia are now around 250% higher than before the pandemic.

A significant 70% of Australia’s imports arrived by sea before the pandemic, and that share should be even higher now as international air travel has slumped due to border closures, he added.

Further, the Australian dollar has weakened by around 5% since early June, so import prices should soon start to rise again, Mr. Thieliant said.

The forecast comes after RBA Gov. Philip Lowe suggested recently that current pricing in financial markets implying a rise in official interest rates in late 2022 was well out of…

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