Why interest rates will keep rising

The global inflation wave has washed on to Australia’s shores, right in the middle of the federal election.

The RBA will soon begin raising interest rates, either next week or in early June, and keep raising the cash rate in the months ahead. It is a welcome development that the cash rate will finally be lifted from an emergency low of near-zero. The economy, with a low 4 per cent unemployment rate, has rebounded from the pandemic due to $314 billion of federal government stimulus.To be sure, controlling inflation is predominantly the remit of the independent central bank.

There is also no plan from the Coalition or Labor to rein in structural budget deficits which will further fuel demand pressures in the economy if inflation persists more than previously thought. More than half of businesses have experienced cost increases over the past three months and a majority of firms passed price increases on to their customers, an. Coles chief executive Steve Cain says he is receiving price rise requests from suppliers. Moreover, the two-year closure of the international border and broader pandemic concerns have reduced the flow of labour around the world. Unions and workers are starting to demand larger pay rises, to catch up to inflation.

But the big 5.1 per cent jump in annual inflation and 3.7 per cent rise in underlying inflation will force the RBA to consider moving the first rate increase forward to next week. A gentle 0.15 of a percentage point rise to 0.25 per cent is a live option.Outlook’s Downes says: “There is no point waiting any longer.” He adds: “Knowing what we know now, they should have started raising rates at the start of the year. The longer the RBA waits the higher they will have to raise rates later.

Of RBA don't raise in May it is economically irresponsible. Their job is monetary policy, the timing of the decision shouldn't be determined by a political calendar.

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