Reserve Bank of Australia (RBA) governor Philip Lowe says the quicker everyone gets vaccinated the less economic damage we will incur, and the faster we can open up.
He said the outbreak of the Delta strain in New South Wales, and the impact of recent lockdowns in neighbouring states, would affect the national economy significantly in coming months.
Speaking to a parliamentary committee in Canberra on Friday, Dr Lowe warned we were entering a tough period, and economic activity was going to contract in the third quarter.
He said he could not rule out economic activity contracting for six months in a row, although he thought that was "unlikely" at this stage.
He said current RBA modelling assumed the damaging Delta variant of the virus would not be followed by "further variants that could cause similar episodes", which explains why he thinks there won't be six months of negative growth.
That could change, however.
Dr Lowe said it was very important for everyone to get vaccinated as quickly a possible, because that would reduce the amount of economic damage around the country and help to open up faster.
Asked if he was a strong supporter of encouraging people to get vaccinated, he said "100 per cent".
"I've had my first shot of AstraZeneca, I'm getting my second one in two week's time," he said.
He said his deputy governor, Guy Debelle, had had both shots, and most of the senior staff at the RBA had had at least one shot of AZ.
But asked if he was optimistic about the economic outlook, he said he was optimistic about "next year".
Inflation not a concern
On the topic of inflation, Dr Lowe said concerns about an outbreak in inflation seemed to have been imported from US political arguments.
He said it would not happen in Australia.
"It's very difficult for me to see us having an inflation problem," he said.
Recent data from the Bureau of Statistics show annual inflation is running at 3.8 per cent, which is above the RBA's target band of 2 to 3 per cent, and well above the rate of recent years.
However, economists say the strong growth in inflation is largely temporary, and will likely fall again.
The jump in prices has occurred after the period of free childcare ended, and as fuel prices have rebounded from their record falls last year.
Dr Lowe said he was expecting inflation to be sitting sustainably above 2 per cent in 2023.
"Much of this discussion on inflation has come out of the United States, where earlier in the year there was an inflation concern," he said.
"That concern was the result of continuing stimulus by the Federal Reserve and a very large fiscal stimulus on top of an already very large fiscal stimulus.
"Given that background, there were some investors who were concerned that we would return to higher rates of inflation, especially when you couple stimulatory policy settings with the supply interruptions we've seen in the global electronics market which has affected, in the United States, the car market as well.
"So the US was in a substantially different position to the one we're in," he said.
He was asked if he was concerned about higher inflation occurring in Australia.
"Not in Australia," he said.
"In the US you could debate it either way, but I would observe that in the past month inflation concerns in the US have started to recede a bit."
"In Australia … the fact that wages growth is likely to remain below 3 per cent for the next couple of years means it's very difficult for me to see us having an inflation problem.
He said we would see a situation where the prices of specific commodities go up because of some disruption or shortage in a global supply chain, but it would not be enough to spark inflation nationally.
"Ultimately, here in Australia, it comes down to what's happening in the labour market," he said.
"With wage growth of 2-point something we're not going to have an inflation problem."
