‘Get rates up’: Devastating call on inflation as economist predicts the RBA will be forced to act
An economist has made a brutal call to the RBA after inflation soared to 3.8 per cent, smashing hopes for further relief for mortgage holders.
An economist is urging the Reserve Bank of Australia to “get rates up” after inflation soared to 3.8 per cent, smashing hopes for further relief for mortgage holders.
The inflation rise for the 12 months to October exceeded expectations and marked the fourth increase in as many months. The Opposition have dubbed it “Jimflation”, laying the blame on Treasurer Jim Chalmers and high government spending.
EQ Economics Managing Director Warren Hogan said the RBA would now be forced to act.
“The key point is that we’re now seeing (is that) inflation looks like it’s rising,” Mr Hogan told Sky News.
“After the quarterly numbers, inflation had stopped falling at about three per cent, but this really tells us that it looks like it’s rising.
“We know the economy’s starting to pick up, so inflation’s very cyclical and it’s probably going only in one direction, which is going to bring the RBA back into play to get on top of it. They have to get rates up to get inflation down.”
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Earlier this year the RBA cut rates three times, after inflation fell back into its 2-to-3 per cent target band.
For now, however, the easing cycle appears to be over.
Mr Hogan expected the cash rate to be held in December and hiked early next year.
“I don’t think they’re gonna hike rates in December. It’s just too hard for them. It’s too much noise (and) too much backlash in the community,” the economist said.
“But if they’re in a position where they might have to in February, they’ve got to start laying the groundwork for that (and) start letting people know that this could be coming.”
The biggest contributor to inflation in the year to October was a leap in electricity prices of 37 per cent, a figure boosted by the withdrawal of state energy bill subsidies. Excluding the impact of the subsidies ending, electricity prices still rose 5 per cent.
Housing rose 5.9 per cent, while food and non-alcoholic beverages and recreation and culture both rose 3.2 per cent.
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Why is the inflation figure a big deal?
The way the Reserve Bank of Australia (RBA) manages inflation has wide-ranging effects on Australians, including their mortgage rates.
When it sets the official cash rate — the overnight interest rate used for lending between banks — the RBA faces the tricky job of keeping inflation and unemployment stable; two competing priorities.
This year the cash rate has been reduced from 4.35 per cent in January to 3.6 per cent in August, where it remains after the RBA opted to hold rates earlier this month.
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Lower interest rates make it cheaper to borrow and encourage banks to lend more. This can give the economy a boost, as consumers are more likely to spend and businesses are more likely to invest and hire workers.
As credit expands, more money flows through the economy. With more dollars chasing the same amount of goods and services, prices can rise — inflation.
During high inflation, prices outpace wages and your savings lose value. To counter this, the RBA raises the cash rate, making borrowing more expensive and slowing the flow of money into the system.
