Treasurer Jim Chalmers said that inflation is the number 1 challenge for the economy and the number 1 focus of the Albanian government.
“Higher inflation and higher interest rates that come with it means the pressure is coming on Australians from around the world, and it’s being felt around the kitchen table,” Dr Chalmers said.
At 2.85 percent, monthly repayments on a 25-year, $500,000 mortgage will increase by $760 starting in May, $1140 for a $750,000 mortgage, and $1520 for a $1 million loan, according to comparison website RateCity.
Inflation rises to 8 pc
The latest increase takes the cash rate to its highest level since April 2013, and economists are divided on whether the RBA may be in the domestic crunch, with the outlook clouded by what happens with inflation.
Headline inflation jumped 1.8 percent in the September quarter, pushing annual growth to a shock 7.3 percent. The result shattered expectations of 1.6 percent quarterly growth and 7 percent over the year.
In addition to expecting annual inflation to peak at around 8 percent due to recent flooding and higher than expected electricity prices, the Reserve Bank believes that price rises will remain above the bank’s target band of 2 to 3 percent until at least 2025, longer. than previously expected.
“Price stability is a prerequisite for a strong economy and a sustained period of full employment. With this in mind, the board’s priority is to return inflation to the 2 to 3 percent range over time,” said Dr. Lowe.
“It aims to do this by keeping the economy on an even keel. The path to achieving this balance remains narrow, and it is clouded in uncertainty.”
A bad scenario looks more likely
After the shock post-budget 32-year high inflation result, economists and financial markets have updated their forecasts for interest rates. Investors are pricing in a cash rate peak of almost 4 percent by July next year, while leading economists believe 3.85 percent could be on the cards.
This is well above the 3.35 per cent assumption used to support the economic assumptions in Dr Chalmers’ budget, suggesting that employment levels and economic growth could be squeezed more than expected.
In a higher inflation scenario outlined in the budget, if annual price rises peak 1 percentage point above the current forecast of 8.75 percent, the blow to the economy would be severe and could trigger a recession.
“Under this scenario, more persistent inflation is likely to lead to a higher peak of interest rates than currently expected. Higher inflation and interest rates would lower real household disposable income,” said the budget.
This would shave around 0.25 percentage points off growth in 2022-23, and halve growth the following year from 1.5 per cent to just 0.75 per cent.
Another 100,000 people would join the job queue by June 2024, bringing the total to about 250,000, pushing the unemployment rate from the current nearly 50-year low of 3.5 percent to 5.25 percent.