On 3 May 2022, 18 days before the last federal general election, Reserve Bank Governor Philip Lowe announced that on 4 May the cash target rate was increasing from 0.0 per cent (where it had stood since 2 December 2020) to +0.25 per cent - a leap of 25 basis points.
For ordinary people life became increasingly miserable as major banks passed on the growing pain to loan/mortgage customers and big retailers rapidly piled on to see how far they could push price increases before the mutterings about rampant greed began to be heard.
The cash rate target did not stop increasing until 6 December 2023 when it did not move from 4.35 per cent. It has stood at that percentage to date.
The following Reserve Bank media release is not overly confident that cost of living pressures are going to end anytime soon even if the cash target rate does not move.
Media Release
Statement by the Reserve Bank Board: Monetary Policy Decision
Number 2024-15
Date 6 August 2024
At its meeting today, the Board decided to leave the cash rate target unchanged at 4.35 per cent and the interest rate paid on Exchange Settlement balances unchanged at 4.25 per cent.
Inflation remains above target and is proving persistent.
Inflation has fallen substantially since its peak in 2022, as higher interest rates have been working to bring aggregate demand and supply closer towards balance.
But inflation is still some way above the midpoint of the 2–3 per cent target range. In underlying terms, as represented by the trimmed mean, the CPI rose by 3.9 per cent over the year to the June quarter, broadly as forecast in the May Statement on Monetary Policy (SMP). But the latest numbers also demonstrate that inflation is proving persistent. In year-ended terms, underlying inflation has now been above the midpoint of the target for 11 consecutive quarters. And quarterly underlying CPI inflation has fallen very little over the past year.
The outlook remains highly uncertain.
The economic outlook is uncertain and recent data have demonstrated that the process of returning inflation to target has been slow and bumpy.
The central forecasts set out in the latest SMP are for inflation to return to the target range of 2–3 per cent late in 2025 and approach the midpoint in 2026. This represents a slightly slower return to target than forecast in May, based on estimates that the gap between aggregate demand and supply in the economy is larger than previously thought. In part, this reflects an increase in the forecast for domestic demand. But it also reflects a judgement that the economy’s capacity to meet that demand is somewhat weaker than previously thought, evidenced by the persistence of inflation and ongoing strength in the labour market.
There is substantial uncertainty around these forecasts. Revisions to consumption and the saving rate in the most recent National Accounts, high unit labour costs and the persistence of inflation – particularly in the services sector – suggest there are upside risks to inflation. Wages growth appears to have peaked but is still above the level that can be sustained given trend productivity growth.
On the other hand, momentum in economic activity has been weak, as evidenced by slow growth in GDP, a rise in the unemployment rate and reports that many businesses are under pressure. And there is a risk that household consumption picks up more slowly than expected, resulting in continued subdued output growth and a noticeable deterioration in the labour market.
More broadly, there are uncertainties regarding the lags in the effect of monetary policy and how firms’ pricing decisions and wages will respond to the slower growth in the economy at a time of excess demand, and while conditions in the labour market remain tight.
There also remains a high level of uncertainty about the overseas outlook. The outlook for the Chinese economy has softened and this has been reflected in commodity prices. Some central banks have eased policy, although they remain alert to the risk of persistent inflation. Globally, financial markets have been volatile of late and the Australian dollar has depreciated. Geopolitical uncertainties remain elevated, which may have implications for supply chains.
Returning inflation to target is the priority.
Returning inflation to target within a reasonable timeframe remains the Board’s highest priority. This is consistent with the RBA’s mandate for price stability and full employment. To date, longer-term inflation expectations have been consistent with the inflation target and it is important that this remain the case.
Inflation in underlying terms remains too high, and the latest projections show that it will be some time yet before inflation is sustainably in the target range. Data have reinforced the need to remain vigilant to upside risks to inflation and the Board is not ruling anything in or out. Policy will need to be sufficiently restrictive until the Board is confident that inflation is moving sustainably towards the target range.
The Board will rely upon the data and the evolving assessment of risks to guide its decisions. In doing so, it will continue to pay close attention to developments in the global economy and financial markets, trends in domestic demand, and the outlook for inflation and the labour market. The Board remains resolute in its determination to return inflation to target and will do what is necessary to achieve that outcome.
More on the August 2024 monetary policy decision...
Statement on Monetary Policy
The RBA's assessment of the economy that the Board considered in making its decision can be found at:
https://www.rba.gov.au/publications/smp/2024/aug/
Australian Bureau of Statistics, media release excerpt, 31 July 2024:
Quarterly CPI inflation
The most significant contributors to the June quarter rise were Housing (+1.1 per cent) and Food and non-alcoholic beverages (+1.2 per cent).
The quarterly growth in Housing was driven by Rents (+2.0 per cent) and New dwellings purchased by owner-occupiers (+1.1 per cent).
“The continuing tight rental market and low vacancy rates caused rental prices to go up 2.0 per cent for the quarter, following a 2.1 per cent rise in the March 2024 quarter,” Ms Marquardt said.
Higher labour and material costs drove the 1.1 per cent rise this quarter for construction of new dwellings. The increase follows a 1.1 per cent rise in the previous quarter.
The rise in Food and non-alcoholic beverage prices was driven by Fruit and vegetables (+6.3 per cent), Meals out and take away food (+0.6 per cent), and Meat and seafood (+1.3 per cent).
"Fruit and vegetable prices rose this quarter as unfavourable growing conditions drove higher prices for grapes, strawberries, blueberries, tomatoes and capsicums. This was the highest quarterly rise for Fruit and vegetables since 2016,” Ms Marquardt said.
Annual inflation measures
Annually, the CPI rose 3.8 per cent, with slightly higher annual inflation for both goods and services than in the March 2024 quarter.
“Prices rose for goods such as tobacco, new dwellings, automotive fuel and fruit. Annual services inflation continued to be impacted by higher prices for rents and insurance,” Ms Marquardt said........
