Today the Reserve Bank increased the cash rate by 25 basis points to 4.85 per cent.
Today’s decision was widely expected but that doesn’t make it any easier for Australian families and businesses to absorb.
It will be difficult news for many Australians who are paying a hefty price for circumstances outside of their control.
Australians are already struggling and this will stretch their budgets even further.
The full impacts of the previous rate rises earlier this year haven’t been fully felt yet and will slow our economy further when they are.
Today’s decision was widely anticipated but not unanimous. This is unsurprising given considerable uncertainty in the outlook and risks in both directions.
The war in the Middle East is pushing up inflation and interest rates around the world and markets expect rates to rise in every major advanced economy.
The war is now in its ninth month and its re‑escalation is putting sustained upward pressure on inflation, weighing on growth, and its end can’t come soon enough for the global economy.
The RBA’s Statement on Monetary Policy today said:
“In particular, materially higher global energy prices as a result of the Middle East conflict have added to inflationary pressures.”
“Fuel and other commodity prices affected by the ongoing Middle East conflict are expected to contribute more to underlying and headline inflation than previously expected.”
Inflation is higher than anyone would like and the conflict in the Middle East is making our existing inflation challenge much worse.
The RBA’s August forecasts assumed the global oil price to be around $81 a barrel but instead they’ve hovered higher than $110 in recent weeks.
We take responsibility for our part of the fight against inflation.
We’re helping with the cost of living at the same time as we manage the budget responsibly and address Australia’s long‑standing productivity challenge.
We are delivering cost of living relief through the tax system, the health system, and through higher wages because we know people are under pressure.
Budgets aren’t the primary driver of prices in the economy, but responsible economic management plays a helpful role.
We’ve found almost $180 billion in savings since coming to government, there have been savings in all eight of our budget updates so far and there will be more savings in the mid‑year budget update in December.
Last financial year public demand growth halved and private demand growth almost tripled.
Today’s updated forecasts from the RBA have revised down the near‑term outlook for public demand and they noted “public demand was weaker than expected over the first half of the year.”
When we came to office, inflation was north of six per cent and rapidly rising, it’s now much lower than that. Underlying inflation was almost five per cent, it’s now also much lower.
We’re not immune from global pressures but we are better placed and better prepared to confront them, and we have much stronger public finances than major advanced economies.
We’re taking pressure off Australians and helping in the fight against inflation while we build a more productive and resilient economy, and today’s decision shows why this is so important.