Independent economist Warren Hogan has warned the Reserve Bank's"only option" is to hike interest rates after Australia saw inflation rise for the second consecutive month.inflation had risen to 3.6 per cent in AprilMeanwhile, core inflation, which the RBA prefers to use when making interest rate decisions, remained steady at 4.1 per cent, well above the target two to three per cent range.
"They're not helping with the new spending, $10 billion in the coming year, they've got tax cuts which are coming," he said. That view was echoed by KPMG chief economist Brendan Rynne, who argued the budget had been"more expansionary than we expected, given the RBA's ongoing efforts to bring down inflation."
Mr Hogan also highlighted that many costs, including in energy and housing, would be higher still if not for government subsidies. Although putting more money back into the pockets of households will provide much needed relief, it may also spark a rebound in consumer spending which the"could sustain aggregate demand above the economy's supply potential and delay the return of inflation to target".
Markets also appeared to suggest a hike may be on the horizon, modestly increasing the probability the RBA would raise rates to 4.6 per cent.