RBA: US Election's Impact on Australian Inflation Unclear

The Reserve Bank of Australia (RBA) has acknowledged the uncertainty surrounding the implications of the upcoming US election on Australian inflation. In its May 2024 Statement on Monetary Policy (SMP), the RBA emphasized the difficulty in judging the potential effects of the election on Australian inflation dynamics. This article explores the reasons behind the RBA's caution and the potential channels through which the US election could influence Australian inflation.

The RBA's uncertainty stems from the complex interplay of global factors and the varying impacts on different sectors of the Australian economy. Several channels could transmit the effects of the US election on Australian inflation, including exchange rate movements, commodity prices, financial conditions, trade policies, and fiscal policies.


Exchange rate volatility, driven by US election outcomes, can significantly impact Australian inflation dynamics. A Trump presidency, with its potential for a weaker US dollar and trade tensions, could make Australian exports more expensive in the US, reducing demand and potentially lowering inflation. Conversely, a Harris presidency, with a more predictable trade policy, might boost exports and contribute to higher inflation. However, the RBA's ability to manage inflation is constrained by these external factors, making it challenging to judge the precise implications of the US election on Australian inflation.

US trade policies, particularly tariffs and trade agreements, can impact Australian inflation through trade channels. Tariffs on imports can increase prices for Australian consumers, raising inflation. Conversely, trade agreements can lower prices by increasing competition and reducing import costs. For instance, the US-Australia Free Trade Agreement (USAFTA) has lowered tariffs on Australian goods, potentially reducing inflation. However, the RBA's ability to judge these implications is challenging due to the complex interplay of global factors and varying impacts on different sectors of the Australian economy.


Changes in US fiscal policy, such as tax cuts or stimulus packages, can indirectly impact Australian inflation through various channels. Firstly, US fiscal expansion can lead to a weaker US dollar, making Australian exports more competitive and potentially increasing inflation through higher demand for Australian goods. Secondly, increased US government spending can boost global demand, driving up commodity prices and raising input costs for Australian producers, which may pass through to consumers as higher prices. Lastly, US fiscal stimulus can lead to higher US inflation, which may influence Australian inflation expectations and wage growth, ultimately affecting domestic inflation.

Shifts in US monetary policy, like interest rate changes or quantitative easing, could influence Australian inflation through various channels, including exchange rate movements, commodity prices, and financial conditions. However, the RBA emphasizes that the extent of these effects is uncertain and depends on the specific policies implemented by the US Federal Reserve.

In conclusion, the RBA's caution in judging the implications of the US election on Australian inflation reflects the complex and uncertain nature of the global economic landscape. The potential channels of influence are clear, but the precise impacts remain difficult to quantify. Investors and policymakers should monitor US election developments and their potential implications for Australian inflation, while the RBA continues to assess global developments and their implications for the Australian economy and inflation.