Warren Hogan: No sugar coating it, the only way is up for rates
Our cost of living crisis rages on and to rub salt into the wound, the only real solution is for the RBA to raise the cash rate further, says Warren Hogan.
Opinion
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Another rate increase is coming. The monthly inflation result for May has all but confirmed that our interest rates will need to go higher before they can come down.
The shock increase in the inflation rate from 3.6% in April to 4% in May confirms that inflation is no longer coming down towards the RBA’s 2% to 3% target range.
Worse still, inflation could be picking up again.
This is bad news, there is no sugar coating it.
Our cost of living crisis rages on and to rub salt into the wound, the only real solution is for the RBA to raise the cash rate further. There is no other choice. If we don’t get our interest rate settings right, the economy and everyone in it will suffer the consequences.
The RBA has shown extreme patience with its monetary policy. At any time in past 30 years the RBA board would probably have taken the cash rate above 5% by now.
They are giving the economy every chance to rebalance itself and for inflation to gradually return to target. But that patience cannot go on forever.
The RBA Governor has said that they want to see two quarterly numbers in a row to be confident in the underlying trend for inflation. What they need to see is inflation heading down towards the mid point of their 2% to 3% target.
We had a higher than expected inflation outcome in Q1 which had the RBA board seriously considering a rate hike in early May.
We then received another shock result in the monthly figure for April.
The RBA signalled a real concern about where inflation is headed at their Board meeting in June but held off on a rate hike once again.
The higher than expected May figures are the ‘straw that broke the camel’s back’ as far as interest rates are concerned.
Inflation is going in the wrong direction and with only one rate hike in the past 12 months it looks like the current level of the cash rate is not high enough to get the job done.
Warren Hogan is an economic advisor with Judo Bank
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