More pain could be on the way as soaring rents and higher power bills crunch household budgets, with the Reserve Bank warning that their fight against inflation may still have some way to run.
The quarterly Statement on Monetary Policy, released on Friday, has seen the Reserve Bank slash its short-term forecasts with economic growth expected to falter further.
Aside from the economic shock experienced during COVID-19, Australia’s economy is now expected to grow at its lowest rate since 1992.
In May, the central bank expected the economy to expand by 1.25 per cent for 2023, before moderately expanding to 1.5 per cent in the 2023-24 financial year.
But according to new forecasts, the bank now expects the economy to grow by just 1 per cent by the end of the year and by 1.25 per cent by June 2024, revising down both its previous forecasts by 0.25 per cent.
While a new set of inflation numbers released by the ABS in July came in below traders’ expectations at 6 per cent, the Reserve Bank’s outlook for inflation is little changed from three months ago.
It will still take until mid-2025 before inflation reaches the Reserve Bank’s target band of 2 – 3 per cent.
Rental costs, a primary contributor to broader inflation measures, are forecast to increase further over the period ahead as rental vacancy rates remain extremely low, and new housing fails to keep up with booming population growth.
“Strong population growth is occurring at a time when the rental market is already very tight and it will take time for supply to respond.
“Rent inflation is expected to continue to pick up over the next year or so, and to add materially to inflation over the forecast period,” the report warned.
Future hikes to the cash rate might also be on the cards with the RBA warning Australia could not yet declare victory against runaway price pressures.
“Some further tightening of monetary policy may be required to ensure that inflation returns to target in a reasonable time frame, but that will depend upon the data and the evolving assessment of risks,” the report cautioned.
“The Board remains resolute in its determination to return inflation to target and will do what is necessary to achieve that outcome.