The Reserve Bank Governor has said surging oil prices in the wake of the United States-Israel war on Iran have made Australians poorer with “no way out”, after handing down an interest rate rise and warning more hikes could be needed. Source: The Guardian.
A week out from the federal budget, Michele Bullock also warned inflation would get worse if governments’ cost-of-living relief was not “targeting where it’s most needed”.
In a widely expected decision, the RBA lifted the cash rate yesterday to 4.35 per cent, from 4.1 per cent, with the central bank forecasting the move would add to intensifying cost-of-living pressures and slow the economy further.
Ms Bullock said the oil price spike from the war would send prices soaring regardless of interest rate efforts.
“We are poorer and there is no way out of that,” she said.
“These interest rate rises are not going to do anything for inflation in the next six months. That’s done and dusted.”
Rate rises were instead aimed at keeping control of local businesses’ price hikes and workers’ wage claims, Ms Bullock said.
“These second round effects could lead to even higher and persistent inflation, and if so, would require even more tightening in monetary policy,” she said.
A week out from what Treasurer Jim Chalmers is simultaneously calling his most ambitious and responsible budget yet, the RBA’s decision will deliver a blow to the more than three million mortgaged households.
Ms Bullock, who has historically refrained from commenting on government spending, said yesterday that governments could help fight inflation by limiting their spending.
“The extent to which government make up the shortfalls for households by giving them more money, it makes it harder to dampen demand,” Ms Bullock said.
Mr Chalmers said the budget would respond to the inflation challenge but added government spending was not the main reason for price pressures.
“We intend to play a helpful role, not a harmful role, in the fight against inflation,” he said.
The shadow treasurer, Tim Wilson, said the Government’s failure to cut spending was already adding to inflation.
FULL STORY
(By Patrick Commins and Luca Ittimani, The Guardian)
