Reserve Bank of Australia (RBA) Governor Michele Bullock has highlighted the critical role of productivity gains in managing inflationary pressures. However, she conceded that the RBA has limited direct control over boosting the economy’s supply-side capacity. Bullock stated that productivity is key to resolving supply-side issues affecting inflation.
In response to a question on the topic, Bullock acknowledged the complexity of improving productivity, noting the efforts of Danielle Wood, chair of the Productivity Commission. Bullock indicated that while advancements like artificial intelligence hold promise, the RBA’s ability to directly influence productivity is limited.
Bullock stressed that economic growth cannot sustainably exceed its potential. If potential growth is around 2 per cent, an increase in private demand above this level could pose inflationary challenges. The RBA’s focus remains on managing demand within the constraints of the economy’s potential output, acknowledging that supply-side improvements are largely outside its direct control.
Essentially, the Governor’s comments underscore the importance of broader economic reforms and technological advancements to enhance productivity, thereby alleviating inflationary pressures. This suggests that fiscal policy and structural reforms may need to play a more significant role in complementing monetary policy to achieve sustained economic stability.
