The recent leap in the prices of the main commodity exports of Australia and New Zealand will boost domestic demand in both economies, but it is unlikely to lead to much faster wage growth and much higher underlying inflation. That’s because businesses are more likely to take advantage of the adequate supply of labour and use the commodity price windfall to raise profits and boost investment rather than wages. So while the outlook for domestic activity in both Australia and New Zealand has improved, the era of unusually low underlying inflation isn’t over. It’s possible that the RBA and RBNZ will put up with low inflation, but we wouldn’t be surprised if they cut interest rates further next year, from 1.50% to 1.00% and 1.75% to 1.50% respectively.
Become a client to read more
This is premium content that requires an active Capital Economics subscription to view.
Already have an account?
You may already have access to this premium content as part of a paid subscription.
Sign in to read the content in full or get details of how you can access it
Register for free
Sign up for a free account to:
- Unlock additional content
- Register for Capital Economics events
- Receive email updates and economist-curated newsletters
- Request a free trial of our services