Australia Inflation

Inflation in Australia touches 32-year high level; RBA to continue aggressive rate hike policy

Australia is moving towards an acute economic crisis day by day as inflation in the country touched a 32-year-high level in the last quarter of the current financial year. The latest data released by Australian Bureau of Statistics suggest that the consumer price index in the island country increased by 1.8% during the quarter which ended in September.

The jump in consumer price index is higher than the market forecast of 1.6%. Increased cost of building and construction materials along with high prices of energy and gas commodities are said to be the major reason for high jump in the consumer price index.

Australia has been suffering from high inflation rates for the past few months. Global supply chain crisis triggered by the coronavirus pandemic and relatively new energy crisis due to Russian special military operation in Ukraine had triggered inflationary pressures all around the world.

As inflation is showing no sign of back down, the central bank of Australia will most probably continue focussing on aggressive interest rate hike policy. Such a move also is highly risky as higher interest rates will reduce cash flow in the economy pushing Australia to brink of an economic recession.

Data related to core inflation in the Australian economy shows that the trimmed mean, also climbed 1.8% in the quarter, lifting the annual pace to 6.1%. This increase is above the market forecasts of 5.6%.

Senior economists are of the opinion that CPI inflation in Australia will touch 8% in fourth Quarter of the current financial year. Such as increase will force Reserve Bank of Australia to hike interest rates than most anticipate. Various commercial banks in the country has already increased their forecasts for cash rates and terminal rates.

Many market analysts believe that Reserve Bank of Australia will not suddenly go back to aggressive interest rate hike policy as the central bank had surprised many this month by downshifting to a quarter-point rate hike, following four moves of 50 basis points. With the release of latest inflation and CPI data of the country’s economy, RBA will have to reconsider its decision to slow down rate hikes. Even though investors are not expecting a drastic rate hike in the upcoming meeting, the bank will surely increase interest rate by at least 50 basis points in the meeting on December. Rates have already risen by a massive 250 basis points since May and the RBA had wanted to go slower to see how the drastic tightening was impacting consumer spending.

Along with RBA, European Central Bank and the Bank of Canada are expected to increase benchmark interest rates by 75 basis points in the current week. Federal Reserve of the United States of America will meet on November 2, 2022 to discuss interest rates hikes in the country.