Treasurer Jim Chalmers has conceded the cost-of-living crisis will get worse before it gets better after the Reserve Bank lifted interest rates for the third time in as many months.
The central bank lifted the official cash rate by half a percentage point to 1.35 per cent on Tuesday in a move that will add $144 to the monthly repayments on a typical $500,000 mortgage.
The move was widely anticipated across the economy but Dr Chalmers said that would make it no easier for households to bear.
“We understand that this is really challenging news for Australians that are already doing it tough,” he told reporters in Canberra.
“Inflation will get worse before it gets better – but it will get better.”
Dr Chalmers said rising interest rates were combining with the skyrocketing cost of essential goods to put “extreme pressure on household budgets”.
On July 1, households paying the default market offer for electricity in their state were subjected to price hikes of up to 10.7 per cent.
Meanwhile, cold weather and COVID supply chain disruptions have pushed up grocery prices while the war in Ukraine and rising global demand for fuel have driven average petrol prices up to $2.11 a litre.
The Reserve Bank has forecast inflation will continue rising and is likely to peak at 7 per cent by the end of the year – well above its target of 2-3 per cent.
RBA governor Philip Lowe said in a statement after Tuesday’s board meeting that the central bank was hiking rates to tackle inflation and because the economy was strong enough to no longer need emergency levels of support.
“Today’s increase in interest rates is a further step in the withdrawal of the extraordinary monetary support that was put in place to help insure the Australian economy against the worst possible effects of the pandemic,” Dr Lowe said.
“The resilience of the economy and the higher inflation mean that this extraordinary support is no longer needed.”
More hikes on the way
Dr Lowe continued that the bank would lift interest rates further “to ensure that inflation in Australia returns to target over time”.
“The Board expects to take further steps in the process of normalising monetary conditions in Australia over the months ahead,” he said.
“The size and timing of future interest rate increases will be guided by the incoming data and the Board’s assessment of the outlook for inflation and the labour market.”
Speaking to reporters after the Treasurer’s press conference, shadow treasurer Angus Taylor said the Coalition left the economy in good shape and the new government was putting that at risk by failing to provide Australians with a comprehensive economic plan.
“Australians deserve a strong response to these economic headwinds,” Mr Taylor said.
“And while Anthony Albanese has been circumnavigating the globe, he hasn’t been able to deliver an economic plan.”