Between the Iran war supply shock and the upward revision of “neutral” rates, we are staring at a cash rate of at least 5 per cent to curb a wage-price spiral.
One of the primary problems with the global price shock is that the starting point was so poor. In Australia, New Zealand, the US and the UK, core inflation was already running about 100 basis points above the central banks’ official targets.
Underlying inflation was also above target in Europe, Canada and Japan. The truth is that no developed-world central bank has ever secured any form of durable price stability since the pandemic. On reflection, it appears that the rate-cutting cycles were premature and, in some cases, politicised.
