Among the risks to inflation remaining higher,the bank cited a further rise in rent inflation,which is already at its highest level since 2008,as well as the large lift in population growth,which is at its fastest rate since the 1970s.
“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,” it said.
Thewar between Hamas and Israel,which has roiled international oil markets,was a growing risk that could add to inflationary pressures. Another concern,mentioned on six separate occasions by the RBA in its forecast report,was theprospect of an El Nino,which in Australia is usually associated with drought conditions.
“The El Nino weather pattern and/or ongoing climate change effects could cause disruptions to
agricultural production that increase food prices by more than expected,” it said.
While the bank has regularly raised concerns about a lift in wages adding to Australia’s inflation woes,the Reserve noted there were signs that pay increases were starting to stabilise,with businesses reporting it was slightly easier to find staff. They were not using sign-on bonuses or other extras as frequently to entice prospective new employees.
A growing problem,the bank noted,was the way that inflation,higher interest rates and the tax system were eating into the spending power of many Australians.
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“Real household disposable income has been declining since mid-2022 and was 3 per cent lower than a year ago in the June quarter. High inflation,strong growth in tax payments and higher net interest payments have more than offset robust growth in labour incomes,” it said.
AMP senior economist Diana Mousina expects inflation and softer economic growth than that forecast by the Reserve Bank.She said even though inflation was trending down in other parts of the world,the bank might take interest rates higher in coming months.
“In the short term,any major upside data surprises around wages,inflation,the labour market or consumer spending could see the RBA increase interest rates again on concern that it would lead to higher inflation,” she said.
NAB’s head of market economics,Tapas Strickland,said the Reserve had noted that not all of its rate rises had yet to be passed through to borrowers,with many commercial banks negotiating with their customers for better deals.
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He said that given the RBA’s own forecasts incorporated another interest rate rise,it seemed likely the bank would move again,probably at its first meeting in 2024.
“In NAB’s view,the RBA’s own forecasts justify another quarter percentage point hike given resilient activity and labour markets and only very gradual progress on inflation. We continue to see the RBA hiking rates by 25 basis points in February,” he said.