Don’t blame our spending for interest rates: treasurer
Jacob Shteyman and Grace Crivellaro |
A rise in government spending shouldn’t be blamed for higher mortgage payments, the treasurer says, as the Reserve Bank looks set to hike interest rates.
Recent data showed the bank’s preferred measure of inflation, the quarterly trimmed mean, is running at 3.4 per cent – well above the central bank’s 2.5 per cent target point.
While experts predicted the rise, Dr Chalmers said other factors beyond government spending had led to increasing prices.
“That uptick in that data was primarily holiday spending, but it was also the withdrawal of the energy rebates,” he told ABC radio on Tuesday.
“There were some persistent pressures there in housing and there were some weather related factors as well. But overall, we know that inflation is higher than we would like.”
Dr Chalmers refused to pre-empt the Reserve Bank’s decision on interest rates, but he said he took responsibility for all parts of his role as treasurer.
“I’m not part of their discussions on the broader point about inflation, we have acknowledged … that inflation is higher than anyone would like,” he said.
After the Reserve Bank opened the door to a hike with hawkish commentary in December, it was harder not to walk through it now, JP Morgan economists said.
While most economists agree a rate rise on Tuesday is all but inevitable, they don’t all share the market’s belief the bank will hike again before the end of 2026.
“We don’t see a case for further tightening past February at this stage, unless the RBA staff’s forecasts change in a substantial way,” JP Morgan experts said.
Commonwealth Bank head of Australian economics Belinda Allen agreed.
“We think the RBA will be one and done for interest rate hikes in 2026,” she told AAP.
“Inflation is too high, the economy is growing a little bit above its potential, but it won’t take much to bring the economy and inflation back into balance.
“The risk, of course, is that more will need to be done. A lot of that will be driven by how the labour market performs and how upcoming inflation prints go.”
The Reserve Bank will release its updated staff economic forecasts on Tuesday at the same time as revealing its interest rates decision.
The Statement on Monetary Policy will provide plenty of clues about how the bank thinks the next year will play out.
In their latest set of economic forecasts in November, Reserve Bank staff forecast inflation to remain above 2.5 per cent until at least the end of 2027.
But that was based on market forecasts for interest rates, which at the time assumed the cash rate would remain at its current level.
While inflation has since exceeded expectations, the cash rate assumption Reserve Bank staff will be using to model their forecasts will now be substantially higher.
With a stronger Aussie dollar, which hit a three-year high above US71c on Thursday, also taking some heat out of the economy, the central bank should be able to forecast inflation returning to target, ANZ Bank’s head of Australian economics Adam Boyton said.
“We expect (governor Michele) Bullock will emphasise that the board is not committed to any particular path for the cash rate and that an interest rate increase in February is not necessarily the start of a series of rate hikes,” he said.
AAP
