Australian Economy

RBA prepares for more rate rises as consumer confidence falls

Voters will go to Saturday’s election with consumer confidence at its lowest level ahead of any federal poll on record and warnings from the Reserve Bank to expect a string of interest rate rises to deal with growing domestic inflation pressures.

In a campaign dominated by cost-of-living pressures, minutes of the RBA’s most recent meeting – at which it lifted official interest rates for the first time since 2010 – show home buyers narrowly escaped a 0.4 percentage point rise, instead of the quarter percentage point increase it settled on.

A weekly measure of consumer confidence fell another 1.3 per cent last week, with the cost of living and the state of the economy top of shoppers’ minds.

A weekly measure of consumer confidence fell another 1.3 per cent last week, with the cost of living and the state of the economy top of shoppers’ minds.Credit:Luis Enrique Ascui

But more rate rises are coming, almost certainly when the bank board meets on June 7, as the RBA grows increasingly concerned that Australians will become used to inflation as domestic factors drive cost pressures across the economy.

“While the significant rise in inflation had been largely the result of global factors, which were likely to have a more temporary effect on inflation, the flow of information on inflation and wages over the preceding month had been consistent with more persistent inflationary pressures arising from limited spare capacity in the domestic economy,” the minutes showed.

“Members observed that it would be more difficult to return inflation to the target if the inflation psychology in Australia were to shift in an enduring way.”

The RBA cut the official cash rate to a record low of 0.1 per cent in November 2020 due to the impact of the COVID-19 recession.

Since then, unemployment has fallen to a near 50-year low but inflation – at 5.1 per cent – is now running at its highest level since the introduction of the GST. Inflation pressures are expected to climb, with the RBA forecasting it to reach 6 per cent before the end of the year.

The bank used its May meeting to lift the cash rate to 0.35 per cent. At that meeting, it also considered a 0.15 percentage point lift – deciding it was not enough to deal with the strength of inflation – as well as a 0.4 percentage point lift.

Source link

Related Articles

Leave a Reply

Your email address will not be published.

Back to top button
SUBSCRIBE TO OUR NEWSLETTER

Get our latest downloads and information first. Complete the form below to subscribe to our weekly newsletter.