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If the Reserve Bank lifts interest rates on Tuesday, governor Michele Bullock may well cite the need to keep consumers’ expectations of inflation “anchored”.But it’s not a simple task to determine what those expectations are and whether they are anchored to reality.Of 39 economists surveyed by Reuters, 34 forecast the RBA will raise its cash rate another 25 basis-points to 4.35%, the 13th increase since May 2022.Bullock used her first speech since becoming governor in September to stress “the important role of inflation expectations” in determining how high interest rates would go and for how long in order to drag inflation back to the bank’s 2%-3% goal.“The longer a central bank permits inflation to remain outside that target, the more likely it is that inflation expectations will shift,” she said. “And if they do, it will require even higher interest rates and unemployment to bring inflation back to target.”Those expectations remain “well anchored but the longer you remain out of that band the more likely it is you’ll become unanchored”, Bullock said, a day before September-quarter data revealed inflation was running higher than predicted.However, calculating what those expectations are – and when the anchor might be slipping – isn’t straightforward. Some critics, such as Jeremy Rudd, an adviser to the US Federal Reserve, arg …
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