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Fears of a wage-price spiral have receded, spending has slowed and the bank needs time to assess, commentators say.
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Observers praise RBA pause as key indicators realign
06 September 2023
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The RBA’s expected decision to leave rates on hold yesterday at 4.1 per cent has been welcomed by commentators as a measured move in the light of an uncertain economic outlook.
CreditorWatch chief economist Anneke Thompson said wage rises of 3.6 per cent for the year to June and an unemployment increase to 3.7 per cent in July meant the RBA could now be “reasonably confident that the threat of the dreaded price-wage spiral has diminished considerably”.
“Retail trade data also tells us that Australian consumers have slowed their spending – where they can – considerably,” she said.
“Certain areas of non-discretionary services, such as rents, insurance, utilities and education, continue to record high or rising price increases. However, the RBA is very likely to recognise that further increases to the cash rate will do little to stem these prices, as various exogenous impacts are responsible for price rises in these sectors.”
Among businesses, she said higher interest rates were mostly impacting those relying on discretionary spending.
Creditorwatch assessed 48 per cent of food and beverage business as high risk and just 13 per cent as low risk, “highlighting just how tough it is for the restaurant and café sector”.
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CPA Australia senior manager Gavan Ord said the RBA’s decision was straightforward in light of last week’s CPI figure but households and businesses would still sigh with relief.
“Despite the economy slowing, there are some reasons to be mildly optimistic if we can continue to rein in inflation. Chief among those is Australia’s very low unemployment rate and increasing capital expenditure by business,” he said.
However, future rises could not be ruled out in an uncertain economic environment.
“Despite today’s reprieve, prudent businesses should continue to factor in further rate increases into their business projections.
“Small businesses continue to operate in an environment of higher interest rates, rising wages and increased costs. Many will need to pass these costs onto consumers.
“Growing economic concerns in China and Germany, among others, could create additional stress for Australian businesses in the months ahead.”
Wizard Home Loans founder and now chairman of Yellow Brick Road Mark Bouris predicted the RBA would leave rates on hold for six to seven months waiting to gauge the effect on the economy.
“The RBA board has outlined where they would like those numbers to be before they start thinking about reducing the cash rate,” he said.
“They definitely don’t want GDP to be negative. As for inflation, they want to see it between 2-3 per cent on a quarterly basis or at least starting to trend towards that number. And, they’ve made it clear that unemployment needs to get closer to 4.5 per cent.”
The RBA said its succession of interest rate increases since May last year “are working to establish a more sustainable balance between supply and demand in the economy and will continue to do so”.
It needed more time to assess the impact of the current interest rate with “uncertainty surrounding the economic outlook”.
Although inflation had passed its peak it was still too high and would remain so “for some time yet” with the cost of services “rising briskly” and rent inflation “elevated”.
It expected inflation to keep falling and to be back within the 2–3 per cent target range in late 2025.
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