There is a good chance the Reserve Bank board will raise rates by 15 basis points on Tuesday. It should follow up with a hike of 25 basis points in June, taking the cash rate to 0.5 per cent within six weeks.
well above what most economists, including those at the Reserve Bank of Australia, thought we would get a few months ago.’s January survey of economists expected inflation to be above the RBA’s 2 per cent to 3 per cent target band at any stage in 2022. Admittedly, my forecast was only 3.1 per cent.
Inflationary pressures are coming from both the international economy and the domestic economy. This shows that rising inflation in Australia is more than a case of supply chain issues driving up prices. Strong demand is a major factor.The reality is that supply constraints, excess demand and accommodative monetary policy are all playing a role is driving inflation. And as we can see overseas, it is a potent force; it has momentum, and we should not underestimate it.
With any luck, this happens as housing, fuel and food costs start to fall. But even on this hopeful scenario, there is a risk that inflation remains elevated well above the RBA’s target band.
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