The RBA could face an inflation quandary

It will take some time before our terms-of-trade decline causes inflation to rise, but the possibility of this occurring alongside below-trend growth could challenge the RBA.

Does Australia have an inflation problem? It’s not bad enough to warrant a rate hike -- at least not yet -- but it may create a conundrum for the Reserve Bank of Australia down the track. I am talking about inflation on Australia’s non-tradable goods, which for years has been obscured (and admittedly partly caused) by our strong terms of trade and high Australian dollar.

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