Jim Chalmers has used the Reserve Bank’s resumption of rate rises to warn fighting Australia’s inflation rate must come ahead of welfare spending in next week’s budget.
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.
“We shouldn’t see the task ahead when it comes to Australians who are out of work as one that is exclusively about the adequacy of the payments,” he said.The RBA is tolerating a gradual return of inflation to its target band. The central bank expects it will be another two years before inflation falls to 3 per cent, but Dr Lowe said on Tuesday evening there was a limit to his patience.
Bond 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. Dr Lowe signalled that further rate increases may be needed “to ensure that inflation returns to target in a reasonable timeframe, but that will depend upon how the economy and inflation evolve”.
One more 0.25 percentage point increase should be enough to bring inflation back to target, Dr Rynne said.
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