Australia’s Central Bank Admits Economic Woes Affect Forecasting

Australia's central bank said that economic forecasts were subject to huge uncertainty, one reason policymakers have stayed the course on interest rates while waiting for more data, Stella Qiu reported for Reuters.

RBA's latest forecasts showed that core inflation, which ran at 3.9% in the June quarter, was only expected to ease back to the target band of 2%-3% by the end of 2025, more than a year away. I Photo: Danausi Wikimedia Commons

Reserve Bank of Australia (RBA) Deputy Governor Andrew Hauser, in a speech in Brisbane, said inflation had been sticky in part due to there being less spare capacity in the economy than previously thought, though again, estimates were subject to error.

That was why the RBA's latest forecasts showed core inflation, which ran at 3.9% in the June quarter, was only expected to ease back to the target band of 2%-3% by the end of 2025, more than a year away.

However, Hauser noted that the change in the assumption was tiny relative to the huge range of uncertainty over these forecasts.

"As humans, we are all prone to overconfidence, particularly when forecasting the future. In many cases, the answer we ought to give is that we simply do not know," Hauser said. "In some cases, uncertainty may induce you to be less active — as you wait for more data or try to avoid triggering tail risks through your own actions."