Philip Lowe may be going down as Reserve Bank governor by mid-year, but he’s going down fighting.
This conveniently ignored Lowe’s caveat that the bank would continue to be guided by the economic data – which has remained surprisingly robust.Although annual headline inflation fell to 7 per cent in the March quarter, down from 7.8 per cent as the cost of goods eased along with increased supply, the cost of services was going in the other direction. Pushed particularly by the jump in energy and rental costs, it increased to an annual rate of 6.1 per cent, up from 5.
“If high inflation were to become entrenched in people’s expectations, it would be very costly to reduce later, involving even higher interest rates and a larger rise in unemployment,” he said. And according to the governor, the latest interest rate rise will help ensure that medium-term inflation expectations remain “well anchored”.might be needed.
But complaints from a couple of million mortgage holders will resonate loudly everywhere from the RBA headquarters at Martin Place to Parliament House in Canberra to every suburb in Australia. For those with a $1 million mortgage – certainly not unusual in Sydney and Melbourne – the cumulative dollar impact of what are now 11 rate rises out of 12 meetings is a staggering increase in monthly payments of over $2100.
In government, Jim Chalmers prefers to refer to the rate rise as a reminder of the difficult economic conditions in which he is framing next week’s budget. Not to mention the political conditions.Chalmers appreciates that the need for the budget to avoid adding to inflation is clashing awkwardly with the increasing clamour – including from his own backbench – to deliver greater cost-of-living relief.