Aussie prices go ‘through the roof’

As Australia’s nightmare about the cost of living gets worse by the day, one of the country’s top bosses has warned of the reality of what’s to come.

Federal treasurer Jim Chalmers has warned inflation is Australia’s “defining challenge” after Reserve Bank governor Philip Lowe predicted it will hit 7 percent this year.

Speaking to the US Chamber of Commerce in Australia on Tuesday morning, the RBA chief said the board had expected inflation to peak at 6 percent in 2022, but had pushed the forecast even higher since early May, when gasoline prices began to rise. skyrocket.

Now the RBA is bracing for a peak of 7 percent in the December quarter — up from the current rate of 5.1 percent.

And while he said he expected it to decline early next year, it would take “several years” for inflation to return to normal.

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“I think it will be a few more years before inflation is back in the 2-3 percent range. In the coming years, it will gradually decrease,” he said.

“That’s why it’s important that we map this path back out there and people have confidence that we’re going to do that.”

He said inflation should start to ease in the coming months due to three main factors: a reduction in the supply chain disruptions caused by the pandemic, the tightening of monetary policy and because some high prices are likely to return. valleys.

Afterwards, Mr. Chalmers thanked Dr. Lowe for his “candidness and his candor”.

“The expectation across the board is that inflation will get worse before it gets better, and interest rates will also get higher,” Chalmers said.

“This is already making life very difficult for Australians, and for Australian industry too, as prices for goods, services and supplies are skyrocketing.

“We have a lot in store for us in this country and in our economy, but we can’t just throw away these major challenges that we will face especially in the next six or 12 months.

“It is possible to be optimistic about the future of our economy and the future of our country, while at the same time recognizing that together we have to navigate a very difficult, very difficult combination of circumstances.

“What it takes here is some patience, some perseverance, a lot of collaboration and collaboration.”

dr. Lowe added that inflation has increasingly come from within Australia rather than as a result of global factors, but pledged to do “whatever it takes” to prevent inflation from rising too far.

“Following a strong recovery from the pandemic, domestic spending growth is now testing the economy’s ability to meet demand for goods and services,” said Dr. lowe.

“This is especially evident in the labor market, where many companies report that the availability of labor is a significant constraint on their ability to operate and/or expand.

“High inflation damages the economy, reduces the purchasing power of people’s incomes and devalues ​​people’s savings. It is also regressive and harms most people who are least equipped to protect themselves.”

Reiterating the RBA’s prediction of a recession, Mr Chalmers said: “We are not currently working on the expectation that that risk will materialize or materialize.

“We have reason to be cautiously optimistic about the future of our economy, but first we must overcome these difficulties that lie ahead.”

Prepare for more interest pain

dr. Lowe also confirmed that more rate hikes were a certainty.

“As we chart our way back to 2 to 3 percent inflation, Australians need to be prepared for more rate hikes,” he said.

“We have decided to make a larger 50 basis point adjustment based on additional information suggesting a further upward revision of an already high inflation forecast.

“The board also took into account the fact that interest rates were still very low.

“However, I want to emphasize that we are not on a preconceived path. How quickly we raise interest rates and how far we need to go will be determined by the incoming data and the board’s assessment of the outlook for inflation and the labor market.”

However, he said he did not believe there was a recession on the horizon for Australia as “fundamentals are still pretty positive”.

RBA’s ‘Reputational Damage’

dr. Lowe also admitted that the RBA suffered “reputational damage” when it tried to roll back its Covid-19 stimulus program.

During his speech, he admitted that a revision of the RBA’s policy of fixing interest rates at 0.1 percent for three years during the pandemic had led to a “disorderly” end to the program in late 2021, which “would give some reputation damage to the bank”.

Meanwhile, Australians are nervously awaiting the RBA’s next rate decision on July 5, when the board is widely expected to vote for another “super-large” rate hike of 50 basis points, which would bring the official cash rate to 1.35 percent. †

It comes after a 25 basis point increase in May and a 50 basis point jump earlier this month, with the spot rate now standing at 0.85 percent.

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