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Further increases are highly likely, says CreditorWatch economist.
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RBA rate raises ‘will need to keep going’
06 July 2022
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The RBA has increased the cash rate by 50 bps to 1.35 per cent in an effort to slow inflation.
The rise matches June’s hike that lifted the cash rate rise to 0.85 per cent.
CreditorWatch chief economist Anneke Thompson said that the rate rise was foreseeable following recent comments by governor Philip Lowe and Treasurer Jim Chalmers.
“Today’s announcement is unsurprising, given recent comments by both Governor Philip Lowe and Treasurer Jim Chalmers that inflation is likely to be around 7 per cent [by] year’s end,” said Ms Thompson.
“Under this scenario, it is highly likely that further increases in the cash rate will be announced as the RBA is probably beyond taking a ‘wait and see’ approach to the impact of their cash rate rises and will need to continue raising rates until they get comfortable that inflation is starting to move down.
“Of continuing concern is supply side inflation. Neither the RBA or the government has much control over this type of inflation, and it will take some months to determine if reducing demand has enough of an impact to bring prices under control.”
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The RBA said that the increase in rates will help ease the battle between supply and demand.
“Higher interest rates will also help establish a more sustainable balance between the demand for and the supply of goods and services,” said the RBA.
The RBA also said that it would release updated forecasts next month following the release of the June quarter CPI.
The fact that the RBA still did not have the data from the June quarter reiterated CPA Australia’s position on the need to move to monthly reporting of CPI data as stated by CPA Australia spokesperson Dr Jane Rennie.
“Australia needs to move to monthly reporting of CPI data,” said Dr Rennie.
“Currently, the Reserve Bank Board only has CPI figures for the March quarter when setting interest rates in July, the March quarter data includes prices from straight after Christmas and we are now more than halfway through the year.
“We still don’t know the full effect of the May and June rate rises on inflation due to the lack of monthly CPI reporting, increasing the frequency of the CPI reporting will enable more responsive decisions.”
Dr Rennie also said that CPA Australia wanted the federal government to support the move to monthly CPI reporting as part of its upcoming October budget by providing additional funding to the Australian Bureau of Statistics to cover the cost of increasing the frequency.
The increase in rates will again impact businesses that will need to look for ways to alleviate the effects, said Dr Rennie.
“Small and medium businesses are already under pressure amid the ongoing effects of the pandemic, rising prices and skills shortages, and today’s rate rise will add to these difficulties,” said Dr Rennie.
“Businesses should consider steps to mitigate the effects of inflation.
“This could include increasing prices and lowering costs as well as stocking up on non-perishable inventory.”
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