RBA will monitor Donald Trump's trade tariffs for inflation risk, says deputy governor

The deputy governor of the Reserve Bank has encouraged Australians not to dwell too much on the likely impact on the Australian economy of a trade war triggered by Donald Trump's presidency, and the problems it could cause in inflation next year.

Andrew Hauser believes that if US President-elect Trump introduced large-scale tariffs next year, the direct impacts on Australia would likely be limited, as our exports to the US were relatively modest.

He said it was also difficult to know with certainty what the indirect impact of the tariffs would be on the Australian economy, as much would depend on the extent to which Australia's largest partner, the China, would retaliate against tariffs, and how global supply chains would react to any sudden price changes. .

Essentially, he said there were too many potential scenarios for Australia, and they remained hypothetical at this stage, so it wasn't worth losing much sleep.

“It is too early to say what the scale and scope of such tariffs might be,” Hauser said on Wednesday.

“Given this uncertainty, it is important that we do not prejudge the policy implications of the tariffs, but monitor developments closely and be prepared to respond appropriately as the facts emerge.

“This is what we at the RBA will do as we take this assessment into account in our overall policy judgments over the coming months.”

Next RBA meeting will take place a few weeks after Trump takes office

Mr. Hauser made these comments in his speech at the annual Australian Business Economists Dinner in Sydney on Wednesday.

They come a day after the RBA board held its final meeting for 2024, at which it left the cash rate at 4.35 per cent.

Trump will be sworn in on January 20 and has announced plans to introduce a 10% tariff on all Chinese goods on his first day in office.

The RBA board will not meet until February 17-18 next year, three weeks into Trump's presidency.

In its post-meeting statement on Tuesday, the RBA board said it was “gaining some confidence” that inflationary pressures were easing in Australia, in line with recent forecasts.

Core inflation remains elevated, but other recent data on economic activity were overall weaker than expected in November.

He said output growth had been weak, wage pressures had eased more than expected and monetary policy remained tight and working as expected.

RBA Governor Michele Bullock said the board deliberately chose certain language in its post-meeting statement to convey the message that they were aware that economic conditions had softened in Australia, so that it tries to reduce inflation.

“It's deliberate, and we wanted the board to get the message out that they noticed some of the data is a little softer, some isn't, it's a little mixed, but some is in the 'A bit softer than we expected,' Ms Bullock said.

“We are not saying what we might do, but we recognize that there is some slowdown and our forecast is to see inflation gradually come back down over the next year.

“As each quarter goes by, our guidance looks fundamentally in line, which gives us a little more confidence going forward.

“We're not saying we've won the battle against inflation yet, but we're saying we're a little more confident that things are moving the way we think they will in our forecasts,” she said.

Economists said the change in language from the RBA board was clearly “accommodative” and raised the prospect of an interest rate cut as early as February next year, rather than in May, although most still think May is the more likely prospect.

Ms Bullock said the RBA board still believed Australia's inflation was on track to continue falling over the next 12 months, assuming no further inflationary shocks hit the economy worldwide during this period.

With this in mind, Mr Hauser reassured Australians that the RBA would monitor events in the United States as Donald Trump enters the White House.

“Australian inflation could go either way,” Mr Hauser said of the impact of a potential trade war.

“As with every element of monetary policy, we will be attentive to developments and prepared to respond in either direction, forcefully if necessary to fulfill our mandate of low and stable inflation with sustained full employment.”