The RBA’s rate rises have been targeted at inflation which, according to a new monthly measure released by the ABS on Thursday, hit 7 per cent in July before edging down to 6.8 per cent in August.
It’s the nation’s highest inflation rate since the middle of 1990 when the Reserve Bank had interest rates at 15.5 per cent.
If volatile items including fruit, vegetables and fuel were excluded, inflation climbed from 5.5 per cent in June to 6.2 per cent in August.
The data was released after turmoil in Britain where the Bank of England unleashed a £65 billion ($109 billion) bond-buying scheme to calm a crisis of confidence in the United Kingdom’s bond market.
There were fears that the £1.5 trillion British pension system was on the brink of collapse due to the economic crisis unleashed after the release of a mini-budget last week by new Chancellor Kwasi Kwarteng.
Chalmers, speaking in Brisbane, departed from his official remarks to reflect on the events playing out in Britain and around the world, saying it was clear the global economic outlook was deteriorating.
“It’s no use tiptoeing around the fact that the global economic environment right now is becoming a pretty dangerous place,” he said.
“What had been the possibility of some of our major trading partners going into a recession has ticked over into a probability.
“It seems more likely than not, in some of the big countries with which we compare ourselves, some of our big trading partners, that they will go into some kind of downturn, if they’re not there already.”
This week, Chalmers said voters should not expect a return to budget surplus by the middle of the decade.
That was after the finalisation of the 2021-22 budget, which showed a $48 billion improvement on what had been forecast in March. Despite the improvement, the budget still showed a deficit of $32 billion last financial year, the 10th largest on record.
Chalmers said fallout from current events would be seen in the October 25 budget.
“It would be foolish to think that we can be completely spared of some of those difficult economic conditions that we’re seeing around the world. I’ll obviously account for that in the budget as well,” he said.
NAB economist Taylor Nugent said the inflation figures were consistent with underlying price pressures quickening.
“With the labour market remaining tight and resilience being shown by households we expect the RBA to increase interest rates by a further half a percentage point in October, before stepping back to a 25bps hike in November and pausing in December to monitor the impact of prior tightening on the economy,” he said.
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