The RBA governor, Philip Lowe, is warning Australians to be prepared for higher interest rates, saying inflation will likely reach 7% by the end of the year. That compares with current inflation of 5.1%.
“That’s a very high number and we need to be able to chart a course back to 2-3%.”
It was only last year the RBA had been expecting to keep the cash rate low until 2024, but Lowe said that was never a promise.
Lowe said the economy didn’t evolve as expected. It’s been much more resilient and inflation has been higher. Adding further, the economy was in remarkable shape with the unemployment rate at a 50-year low, households having built up financial buffers of around $250bn and the number of people falling behind on their mortgage repayments actually declining.
These comments came as global share markets are in turmoil fearing the US economy could fall into recession if the Federal Reserve raises interest rates aggressively to combat its own inflation problem. US inflation is at 8.6%, its highest level in 40 years.
But the governor is confident the Australian economy will continue to grow strongly over the next 6 to 12 months believing people will continue to spend the money they saved during the Covid-19 restrictions.
He also said there was a big backlog of construction work to be undertaken and the number of job vacancies was extraordinarily high. So with jobs being available, people will be employed and will keep spending!
Let’s see if his predictions come to fruition. That inflation rates increasing to 7% by the end of the year, the Australian economy continue to grow strongly over the next 6 to 12 months and then the inflation rate returning to 2-3% next year.