Treasurer’s inflation warning as RBA raises spot rate to 1.35 percent

Federal treasurer Jim Chalmers has warned that inflation is likely to get worse before it gets better, as Australia’s central bank has raised interest rates for the third month in a row in a bid to get it under control.
The Reserve Bank of Australia (RBA) raised its spot interest rate by 50 basis points to 1.35 percent on Tuesday after its monthly board meeting.
It is the third consecutive increase in cash interest rates after the RBA – the highest increase since February 2002.
It followed the spot rate
RBA board tries to use rate hikes to push inflation down back in its target range of two to three percent.
Central bank governor Philip Lowe called high global inflation ahead of the decision to raise cash interest rates, but said the Australian economy remains “resilient” in the face of international and domestic economic pressures.
Mr Chalmers warned Australians may expect inflation to pick up this year but there will be a delay.

“Inflation will get worse before it gets better, but it will get better,” he said on Tuesday.


Mr Lowe said the decision is another step in withdrawing the financial support provided during the COVID-19 pandemic.
“Global inflation is high. It is fueled by COVID-related supply chain disruptions, the war in Ukraine and strong demand putting pressure on manufacturing capacity,” said Dr. Lowe in a statement Tuesday.

“Strong demand, tight labor market and capacity constraints in some sectors are contributing to the upward pressure on prices. The floods are also affecting some prices.”

Line chart of February to July spot rates, up 1.35 percent

The official cash interest rate has risen to 1.35 percent in what is a steady rise, driven by global and domestic pressures that have led to high levels of inflation. Source: australiabusinessblog News

He said inflation is expected to peak at the end of this year, but is expected to decline to two to three percent by 2023.

Banks are expected to raise interest rates on home loans in line with Tuesday’s cash rate hike.
Chalmers said the RBA’s announcement is “really challenging news” for millions of Australians, especially those who are “already struggling”.
“Mortgage payments will now eat up even a large chunk of household budgets, which have already been stretched due to the skyrocketing cost of essentials,” he said.
“Just because this was expected today doesn’t mean it will be easier for people to copulate.
“We know, we understand, we appreciate that the skyrocketing cost of living… is putting extreme strain on household budgets and today’s rate hike will only add to the pain people are feeling.”

– With AAP.

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