The Reserve Bank of Australia governor says inflation will peak at about 7 per cent late this year, but an extra $250 billion of savings will help households contend with cost of living pressures and falling house prices.
Dr Lowe said it was “unclear” how high the RBA would need to lift interest rates to eventually get inflation back into the 2 per cent to 3 per cent target band, but the central bank would do “what is necessary”.
Dr Lowe said he was not worried about falling house prices in capital cities such as Sydney and Melbourne because the central bank did not target house prices. “So there are a lot of other factors that are influencing consumption other than housing prices and our job is to work out what the balance is amongst all those factors.”
Dr Lowe said he expects global inflation pressures to ease from early next year, such as the high global oil price and pandemic-induced supply chain disruptions, with manufacturers of cars and computers chips already ramping up production. “So inflation will come down for those reasons but it will also come down because of the higher interest rates.”
The options to afford the spending were growing the economy “very strongly so that the pie is bigger and serving more funding for everything.