The Reserve Bank of Australia (RBA) has once again increased the official cash rate by 0.50% to 1.35% to curb rising inflation.
In a statement RBA Governor Philip Lowe outlines that 'Global inflation is high. It is being boosted by COVID-related disruptions to supply chains, the war in Ukraine and strong demand which is putting pressure on productive capacity.' Global factors are also influencing high inflation in Australia however domestic factors such as strong demand and a tight labour market are also playing a role.
Lowe suggests 'Inflation is forecast to peak later this year and then decline back towards the 2-3% range next year. As global supply-side problems continue to ease and commodity prices stabilise, even if at a high level, inflation is expected to moderate. Higher interest rates will also help establish a more sustainable balance between the demand for and the supply of goods and services.'
One source of ongoing uncertainty about the economic outlook is the behaviour of household spending. The recent spending data has been positive, although household budgets are under pressure from higher prices and higher interest rates. The household saving rate remains higher than it was before the pandemic and many households have built up financial buffers and are benefiting from stronger income growth.
The RBA expects to take further steps in the process of normalising monetary conditions in Australia over the months ahead.
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