In a jolting report released recently, the Reserve Bank has signaled that the ongoing fight against inflation might be far from over. As households brace for rising unemployment, the report revealed alarming spikes in rents and escalated utility bills that are poised to impact household budgets significantly.
The Quarterly Statement on Monetary Policy, unveiled on Friday, paints a gloomier picture for the short-term economic landscape, causing the Reserve Bank to revise its growth projections downwards.
Australia Economy records all time low As Inflation Crisis Worsens
Even as the economy reels from the aftermath of the COVID-19 shock, Australia is on track for its lowest growth rate since 1992.
Initially, the central bank had projected a 1.2 percent economic expansion for 2023, with a modest uptick to 1.4 percent in the subsequent financial year.
However, the revised forecasts paint a grimmer scenario, anticipating a mere 0.9 percent growth by year-end. Projections show that GDP growth could inch up to 1.6 percent by the close of 2024 and reach 2.3 percent by the conclusion of 2025.
Despite a recent release of inflation data by the ABS in July falling below trader expectations at 6 percent, the Reserve Bank’s inflation outlook remains largely unchanged from three months prior.
It is expected that inflation will not align with the Reserve Bank’s target range of 2-3 percent until around mid-2025.
The pressing issue of rising rental costs, a substantial contributor to overall inflation metrics, is projected to intensify in the near term due to persistently low rental vacancy rates and inadequate housing supply amidst rapid population growth.
Energy prices are anticipated to further exacerbate the cost of living, although government rebates and subsidies are anticipated to alleviate some of the strain.
While the report foresees an upturn in Australia’s wage bill, indicating the fastest growth in a decade, it also underscores the challenges workers face in keeping up with the escalating cost of living.
The bank also revealed an increase in demand for food assistance by employed individuals, attributed in part to rising interest rates, and a surge in service demand from mortgage holders.
The Reserve Bank also cautioned that recent governmental interventions on minimum and award wages could potentially set a benchmark for inflation across the economy, potentially leading to persistently higher inflation until the end of 2025.
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Tthe unemployment rate is projected to rise, with an estimated additional 140,000 individuals expected to be unemployed by June 2025.
Despite experiencing twelve rate hikes since May 2022, households are being urged to prepare for potential future rate increases as the Reserve Bank maintains its vigilance against persistent price pressures.
The bank emphasized its determination to steer inflation back towards its target range and affirmed its readiness to take necessary measures to achieve this outcome based on evolving data and risk assessments.
