Interest rates: Research firm Capital Economics predicts two more rate rises after new inflation statistics revealed


Amid rising inflationary pressures, the Reserve Bank of Australia (RBA) finds itself at another juncture, contemplating the possibility of not one, but two additional cash rate increases in the coming months.

According to leading economic research firm Capital Economics, the RBA may need to wield its monetary policy tools more aggressively than initially anticipated, as it foresees inflation surpassing the central bank‘s forecasts in the current quarter.

This projection has led Capital Economics to pencil in two more quarter-point rate rises by the RBA, with one expected at the upcoming meeting on June 6.

Should this scenario materialise, the cash rate would soar to 4.35 per cent by July, according to analysts.

The latest figures unveiled by the Australian Bureau of Statistics (ABS) reveal a substantial jump in headline inflation, reaching a staggering 6.8 per cent over the 12-month period leading up to April.

While this figure surpasses the 6.3 per cent annual rise reported in March, it remains below the December peak of 8.4 per cent. The primary drivers of this surge can be attributed to the upward trajectory of housing prices, escalating costs of food, transportation, and recreation and culture.

With volatile factors such as fuel, fruit, vegetables, and holiday travel being removed from the equation, the ABS confirmed that inflation actually receded from 6.9 per cent in March to 6.5 per cent.

Michelle Marquard, the head of price statistics at the ABS, highlighted the importance of excluding items with volatile price changes to obtain a clearer picture of underlying inflation. This revelation suggests that while headline inflation may be cause for concern, the true state of the economy is somewhat more favourable.

The underlying trends revealed by the ABS figures hold significant importance for the RBA, as they provide crucial insights into the state of the economy beyond the headline numbers.

The central bank will carefully analyse these figures during its upcoming board meeting to determine the appropriate course of action.

While the spotlight remains fixed on inflation, other noteworthy developments warrant attention. Rent prices experienced a notable increase, surging from a 5.3 per cent annual rise in March to 6.1 per cent in April, highlighting the tight rental market.

Additionally, the ABS reports a slight easing in food and alcoholic beverage prices, with a marginal decline from 8.1 per cent in March to 7.9 per cent in April.

These factors contribute to the broader economic landscape and should be considered in conjunction with the inflationary outlook.

It came as struggling Australians hit back at the Reserve Bank governor’s “out-of-touch” solution to the country’s housing crisis, arguing he should take his own advice before telling others to get a roommate.

At a senate estimates hearing on Wednesday morning, Philip Lowe warned that not enough homes are being built to keep up with the nation’s population growth, consequently driving up rent and the cost of living.

“The vacancy rates in each city are very low … there are few things that have contributed to that,” he said, before explaining how the pandemic led to a decline in the number of people per household.

“People wanted more space, they were working from home … so the average number of people living in each dwelling declined and that increased the demand for the total number of dwellings.

“The population is increasing by 2 per cent this year, are there 2 per cent more houses? No,” he said, suggesting people just get more flatmates.

But his solution has since enraged a string of young Australians who have grilled the governor by asking if he’s considered taking in a few roommates of his own.

But his solution has since enraged a string of young Australians who have grilled the governor by asking if he’s considered taking in a few roommates of his own.

“Pretty sure Lowe isn’t sharing his multimillion mansion with a couple housemates to keep costs down,” former journalist Tyron Butson argued.

Meanwhile, higher education reporter at The Guardian, Caitlin Cassidy, suggested a “petition” for Mr Lowe to try share housing in Sydney.

Wealth Through Property director and buyers agent Scott Levoune told news.com.au those who can afford to, need to make sacrifices if they want to buy their own home in the future.

“Over the last five to ten years, rents didn’t grow and a lot of people got comfortable and thought ‘hey, we’re a couple but we can get a four-bedroom house’. So what’s happening now … rents have increased and they’re not willing to sacrifice,” he said.

The entrepreneur explained bunking with a roommate or spending some more time living with parents could help.

“You should be allowed to buy a house because that’s what we deserve,” he said.

Mr Levoune proposed the government encourage more local and international buyers to invest.

“We know people hate investors, and investors are scum for this, for that (but) we need more investors,” he said.

“Investors create supply – the less supply you have, the more demand there is. The more demand there is, the more people are going to pay.

“So what’s going to happen is these people who can’t already afford a home, they’re just not going to buy a home.”

Read related topics:Reserve Bank



Source link

Leave a Reply

Your email address will not be published. Required fields are marked *