The Reserve Bank raised interest rates to 3.85 per cent, stunning economists and markets, and flagging further increases may be needed.
Treasurer Jim Chalmers has used the Reserve Bank’s shock resumption of interest rate rises to warn that fighting Australia’s 7 per cent inflation rate must come ahead of demands to increase welfare spending in next week’s budget.
But, while inflation had peaked, he warned that unit labour costs were rising “briskly”, price inflation for the labour-intensive services sector remained “very high”, and overseas evidence pointed to “upside risk”. Dismal rates of labour productivity meant that current rates of wages growth could be inconsistent with the inflation target.
, which were pricing almost no chance of a move given the RBA’s recent rhetoric and evidence that households are cutting back on spending.Australian shares tumbled 0.9 per cent in afternoon trade, with the SBond yields shot up after the decision, while the Australian dollar rose 1.3 per cent to US67.15¢ on the prospect of higher interest rates.
He will provide further information about the outlook for monetary policy when he speaks at a dinner in Perth on Tuesday evening. “The continuation of wages growth around 4 per cent per annum without a corresponding increase in productivity means these input costs are directly adding to inflationary pressures in a circular fashion,” Dr Rynne said.
BIS Oxford Economics head of macroeconomic forecasting Sean Langcake said the RBA is running the risk of not doing enough to tame inflation.
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