The Reserve Bank of Australia has released its quarterly Statement on Monetary Policy, and the forecast is bleak. The fight against inflation is far from over, as rising rents and higher power bills are expected to hit household budgets hard, along with rising unemployment rates.
According to the report, economic growth in Australia is set to reach its lowest point since 1992. The Reserve Bank has revised its short-term forecasts and now expects the economy to grow by just 0.9% by the end of the year. However, there is some hope for the future, with GDP growth projected to increase to 1.6% by the end of 2024 and 2.3% by the end of 2025.
Inflation remains a concern, with the Reserve Bank’s target band of 2-3% not expected to be reached until mid-2025. Rental costs, a significant contributor to inflation, are expected to continue to rise as rental vacancy rates remain low and new housing struggles to keep up with population growth.
The cost of living is also expected to be impacted by increasing energy prices, but government rebates and subsidies will help alleviate some of the burden. However, the rising cost of living is outpacing wage growth, leading to more people seeking food support assistance and an increase in demand for services from those with mortgages.
While Australia has experienced 12 interest rate hikes since May 2022, households should prepare for potential future rate hikes as the Reserve Bank believes the country is not yet in a position to declare victory against inflation. The recent government intervention on minimum and award wages could also contribute to persistently higher inflation until the end of 2025.
The Reserve Bank remains committed to returning inflation to its target and will take necessary actions to achieve that goal. However, the board acknowledges that further tightening of monetary policy may be required, depending on data and risk assessments.
In conclusion, the Reserve Bank’s forecast paints a grim picture for the Australian economy. Rising inflation, soaring rents, and unemployment are expected to weigh heavily on households in the coming years. It will take time for the economy to recover, and additional measures may be needed to combat inflation and support economic growth.
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