Interest rates Australia: RBA governor Michele Bullock, grappling with the future pace of disinflation, must now warn that rates may rise again

The Reserve Bank of Australia board will need to seriously consider lifting interest rates in the months ahead if domestic inflation continues to prove stickier than hoped.“But there are several reasons why I struggle to see the Reserve Bank of Australia cutting interest rates by much, if at all, this year.“It’s not out of the question that the RBA is, reluctantly, forced to raise rates again in response to persistent inflation.”Intellectually, there is a case for an immediate increase to the 4.

However, the timetable for achieving the inflation goal is now more uncertain and will be exercising the minds of Bullock and the nine-member board.The key question they will be grappling with is: What is the future pace of disinflation?Headline inflation will lift more than previously expected in the current June quarter because of higher petrol prices, although the RBA will look through this temporary jump and focus on underlying inflation.

After six weeks ago shifting to a broadly neutral stance on the next interest rate move being up or downInflation is undeniably homegrown, with domestically generated inflation running at a hot 5 per cent, versus 1 per cent for imported inflation.Services inflation in labour-intensive sectors is proving sticky, as largely expected.

Working in the other direction from July will be more than $20 billion of annual income tax cuts, another lift in the minimum and award wages and household disposable incomes turning positive. Most US home borrowers have 30-year fixed rate mortgages. In Australia, indebted consumers struck by sharp moves in variable home loan rates have cut back discretionary spending.

Critics campaigning vigorously against further rate rises are largely the same group of people who warned that last November’s rate rise was unnecessary.

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