Inflation is currently too high, at 6.9% over the year to October. RBA forecasts predict inflation will reach 8% in the December quarter. The RBA has stated that “high inflation damages our economy and makes life more difficult for people. The Board’s priority is to re-establish low inflation and return inflation to the 2–3 per cent range over time.”
Fortunately, inflation forecasts show a decrease to slightly above 3% in 2024. The reduction in inflation over 2024 is due to the ongoing resolution of global supply chain issues, declines in certain commodity prices, and slower demand growth.
The Australian economy is still experiencing solid growth. Despite the slowing global growth, and the rising cash rate reducing household consumption, growth forecasts are still set at 1.5% for 2023 and 2024.
The labour market remains very tight with unemployment sitting at 3.4% in October, the lowest rate since 1974. The RBA is conscious of the inflationary nature of very low unemployment, and the possibility of a wage-price spiral.
The RBA has noted that the full effect of the rate hikes is yet to be felt in mortgage payments. Considered alongside the uncertainty present in the global economy the RBA has emphasised the importance of a ‘soft landing’.
Looking forwards the RBA will continue monitoring the global economy, household spending and wage prices. The incoming data will determine the size and frequency of future rate hikes, as the RBA has stressed, they will not be following a pre-set path.
To read the RBA statement click here.
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