Already a subscriber?The Reserve Bank of Australia is truly screwed. It has once again been humiliated by a predictably protracted, and now re-accelerating, inflation crisis that it refuses to tackle for fear of upsetting its political masters, who control negotiations over the future of monetary policy setting.and the United States, by lifting its cash rate to 5.0-5.5 per cent, has meant that Australians now face the spectre of yet another cycle of interest rate increases.
Economists are all seriously countenancing multiple rate rises as a dovish RBA is compelled to crawl towards a 5 per cent cash rate, which is where its own models recommended it should have set its target rate last year.
Headline inflation in May was above consensus forecasts for the third month in a row, climbing by 4.1 per cent over the past year. That is miles above the RBA’s 2.5 per cent target. More worryingly, the RBA’s preferred measure of underlying inflation, which is the trimmed mean benchmark, appreciated by a stronger 4.4 per cent over the 12 months to May 31, which is its fastest pace since November.Breaking apart the data presents a deeply disturbing picture.
Put simply, Australia likely has a bigger inflation problem than the rest of the developed world because the RBA is patently not willing to do its job, which is to fight inflation as it seeks to simultaneously avoid losing the employment gains made during COVID. It is shockingly running around telling the public that the federal budget was designed to combat inflation when it is doing the opposite.
The RBA should have lifted rates several times after the shockingly high March quarter inflation numbers, which it foolishly decided against. By kicking the can down the road on the “hopeium” that inflation will magically disappear, it is exacerbating the crisis.
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