Reserve Bank of Australia raises cash rate target by 25 bps to 4.10%

“Inflation in Australia has passed its peak, but at 7 per cent is still too high and it will be some time yet before it is back in the target range. This further increase in interest rates is to provide greater confidence that inflation will return to target within a reasonable timeframe,” Philip Lowe, governor of RBA, said in a statement.

Recent data indicate that the upside risks to the inflation outlook have increased, and the Board has responded to this. While goods price inflation is slowing, services price inflation is still very high and is proving to be very persistent overseas. Unit labour costs are also rising briskly, with productivity growth remaining subdued.

Growth in the Australian economy has slowed and conditions in the labour market have eased, although they remain very tight. The unemployment rate increased slightly to 3.7 per cent in April and employment growth has moderated. Firms report that labour shortages have eased, although job vacancies and advertisements are still at very high levels.

Wages growth has picked up in response to the tight labour market and high inflation. Growth in public sector wages is expected to pick up further and the annual increase in award wages was higher than it was last year. At the aggregate level, wages growth is still consistent with the inflation target, provided that productivity growth picks up.

The Board is still seeking to keep the economy on an even keel as inflation returns to the 2-3 per cent target range, but the path to achieving a soft landing remains a narrow one. The combination of higher interest rates and cost-of-living pressures is leading to a substantial slowing in household spending. There are also uncertainties regarding the global economy, which is expected to grow at a below-average rate over the next couple of years, the statement added.

Some further tightening of monetary policy may be required to ensure that inflation returns to target in a reasonable timeframe, but that will depend upon how the economy and inflation evolve.

Fibre2Fashion News Desk (KD)