Rate hike again, but ‘sticky’ inflation likely to peak later this year

For the third month in a row, Australia’s central bank raised interest rates, signaling that more will follow in the fight against rising inflation, even if it carries the risk of an economic downturn.

The Reserve Bank of Australia raised its spot rate by 50 basis points to 1.35 percent at the end of its July policy meeting, a total of 125 basis point increases since May and the fastest string of increases since 1994.

Block Earner CEO and co-founder Charlie Karaboga are still skeptical that the raise will make a big difference.

He says that despite the RBA’s rise in interest rates for three straight months, the 50 basis point hike continues to close the gap left by inflation, but the Aussies will still feel the bottleneck.

“Since a spike in the cost of living is largely caused by factors outside the country, such as the war in Ukraine, a rise in interest rates is unlikely to bring inflation down for the foreseeable future.

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“While the RBA has contained inflation by raising borrowing rates and reducing demand for goods and services, the real cause is not entirely demand-driven. Rather, it is due to shortages on the supply side. This form of demand destruction pushes the economy further into an environment of stagflation – inflation will remain high, while we will experience economic stagnation.

“With the increased basis point also reflected in the official spot price of 1.35, we can anticipate that asset prices will see a sharp correction and that both savers and investors will experience the highest degree of asset destruction in recent years.

“To counter the impact of high inflation and asset volatility, Australian savers and investors should look for high-yield alternatives to the big four, which will not only soften the blow to the cost of living, but also enable them to to save. for important milestones such as retirement or the breakout of the housing market in an otherwise unstable economic environment.”

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Inflation bites

According to RBA, inflation is expected to peak later this year and fall back to the 2-3 percent range next year.

“Inflation is likely to decline as global supply-side concerns continue to mount and commodity prices stabilize, albeit at high levels,” Governor Philip Lowe said in the statement.

“Higher interest rates will also help create a more sustainable balance between supply and demand for goods and services.

“Medium-term inflation expectations remain firmly anchored, and it is critical that they do so. Following the announcement of the June quarter CPI, a comprehensive set of updated estimates will be provided next month.”

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