Inflation Expected to Increase At 8% in Australia

The RBA announced inflation, as measured by CPI,  in 2022 in Australia as the highest it has been for more than 3 decades. The Central Bank raised its benchmark rate by 25 basis points for the second time in a row.

The cash rate lifted from 2.6% to 2.85%, a result expected by economists.

What has affected this aren’t only global factors, but strong domestic demand that can’t be met by supply. The labour market is tight and statistically Australia is at full employment level.

The RBA has been scaling back it's rate hikes against the uncertain outlook of the global economy, which has deteriorated these recent months.

Australian Economic Forecast 

The Australia's Central Bank also provided numbers from its update of forecasts. It expects:

• inflation rate at the end of 2022 to peak at around 8%, up from a previous 7.75%. Australia's inflation rate 2023 is predicted to go 4.75% and a little above 3% in 2024.

• economic growth at around 3% in 2022 and 1.5% in 2023 and 2024,
  
  
• gradual unemployment increase to “a little above” 4% in 2024.
  
  

What Does This Mean for the Rest of the Economy?

RBA Governor Philip Lowe said in his post-meeting statement that the board expects to increase interest rates more over the period ahead. The bank is monitoring household spending, the global economy, and wage and price-setting behaviour.

He added: “The RBA is now prepared to tolerate inflation above target for a longer period”. 

Furthermore, the Central Bank lowered its outlook for economic growth in response to higher rates.

“The RBA is now prepared to tolerate inflation above target for a longer period. So there’s really a key focus on keeping the economy on an even keel. Markets will be pondering the credibility of that.”

David Plank, head of Australian economics at Australia & New Zealand Banking Group Ltd.