Rising mortgage payments are putting further pressure on household budgets already hit by rising food prices and rising gas costs.
Prime Minister Anthony Albanese pointed to Labour’s support to expand low- and middle-income tax relief, which came into effect on July 1 as a form of financial aid that would help families with higher bills.
The so-called LMITO will add about $8 billion to the economy in the coming months, but could be more than offset by recent rate hikes and a third rate hike of 0.5 percentage point tipped for August.
Richardson, a former Deloitte Access Economics economist who went solo earlier this year, said the RBA and the government are juggling two different objectives: the first, to tame inflation; and the second, honesty.
“Policy makers in Australia are in a tug-of-war with themselves,” he said.
“The RBA is concerned about the threat to the sustainability of wealth from inflation. That’s why it takes money out of the economy. But the politicians and the [Fair Work Commission] are more focused on honesty. That is why the current burst of inflation is driving them to put money into the economy.
“More interest rate hikes are on the horizon. How much more, exactly, will depend – much – on what happens besides wages, and whether the government can eliminate the demand for more aid in its October budget.”
When asked about extending the temporary 50 percent cut in the $3 billion fuel tax after September, treasurer Jim Chalmers described the situation as a clash of fiscal and economic realities.
“It would cost the budget a lot of money to extend it indefinitely, and we all have to weigh that responsibly. We have to weigh up our priorities and you can’t do everything you want to do,” he said.
In his statement after the meeting on Tuesday, RBA Governor Philip Lowe said a major source of lingering uncertainty about the economic outlook was household spending behavior.
Retail sales rose for the fifth straight month to a record high in May, surprising economists who expected a downturn.
May revenue rose 0.9 percent from April, surpassing $34 billion for the first time, and rose 10.4 percent in the lockdown-hit month of May 2021, the Australian Bureau of Statistics said.
“Recent spending data has been positive, although household budgets are under pressure from higher prices and higher interest rates,” said Dr. Lowe, which is not what the RBA wants to see as it appears to be stifling demand due to weak supply attributed to the war in Ukraine and domestic flooding.