Nation at risk of more rate hikes, Soul Patts chair Robert Millner warns

Australia is at risk of seeing interest rates as high as 5 or 6 per cent if inflation is not brought down, says Washington H. Soul Pattinson chair Robert Millner.

Robert Millner says Australia could emulate the US with more interest rate rises in the pipeline. Picture: Adam Yip

Washington H. Soul Pattinson chair Robert Millner says Australia is at risk of seeing rates rise as much as they have in the US if it does not control inflation.

Back from attending Berkshire Hathaway’s annual general meeting at the weekend, Mr Millner on Thursday said the US was just managing to control inflation with central bank rates above 5 per cent.

“At the moment you’ve got inflation out here and interest rates down here (in Australia). In America they are now just about to come together but we’ve still got a 2 or 3 per cent (gap) there, so inflation has only got to come back down or interest rates are coming up,” he said. The US Federal Reserve last week raised official rates to 5.25 per cent, in the tenth straight hike since March 2022.

With the price of goods and services still up 4.9 per cent in April – down from 9.1 per cent in June – some economists estimate rates could go rise above 6 per cent to fight stubborn inflation.

Local inflation has hovered around 7 per cent since September, despite the Reserve Bank of Australia raising rates 11 times in the past year to 3.85 per cent.

Mr Millner – who is also chairman of building materials company Brickworks and coal miner New Hope, in which Washington’s hold large stakes – said the Australian central bank would have no other option but to raise interest rates again if demand and supply imbalances persisted.

“We’ve got energy costs going up, we’ve got labour costs going up. If inflation comes down, they won’t need to increase interest rates, but if inflation keeps going up, they’ll have to put interest rates up,” Mr Millner told The Australian on the sidelines of the Australian Shareholders Association conference in Sydney.

He said that supply issues were still prevalent and it was “really difficult” to get good labour in the country.

Mr Millner’s comments came after the federal budget on Tuesday revealed $21bn of spending planned for the next four years to 2026-27.

Treasurer Jim Chalmers has argued that the balance of fiscal expenditure announced will be deflationary. However, some economists say the budget has increased the risk of interest rates staying high for longer than ­expected.

Commenting on the federal budget, Washington’s managing director Todd Barlow said it was “very hard to spend money to reduce inflation”.

Mr Barlow added the $11bn investment house was very concerned about fostering productivity.

“Productivity is also a major concern for us. Not only are we seeing wages growing, we are also seeing people’s individual output reduced, and that’s inflationary in itself.”

He said productivity was not something you could be fixed through a single budget.

“That takes long-term planning to get the country back on track, to get people to increase their output,” he said. “If we really want to reduce inflation, we need to look at how to get people producing more and how do we get more supply of the things we need, like gas.”

AMP chair Debra Hazelton. Picture: John Feder

Separately, AMP chair Debra Hazelton, who also attended the ASA event, said Mr Chalmers’ second budget addressed the needs of the more vulnerable while balancing the risk of fuelling inflation.

“They are spending a lot, but I think they are showing discipline and I think they are managing for future risks,” Ms Hazelton said.

“It was delivered in a spirit of budget repair which showed discipline in the sense that there is a lot of uncertainty coming still and so those windfall profits could not have been used more broadly.”

Ms Hazelton welcomed the government‘s “smaller” announcements directed at investments and focus on cyber risks for corporations and government.

The government said it would spend $101m over four years in new cyber security funding in response to high-profile security breaches at large companies.