Inflation has never been driven by consumer demand. Rate hikes are not the solution; therefore, rates must reach their peak and decline rapidly.
During the initial five months of 2023, inflation stood at 1.2%, equivalent to a monthly rate of 0.24%. When annualised, the inflation rate for this calendar year thus far reaches 2.88%.
Our targeted Consumer Price Index (CPI) range of 2%-3% has already been achieved, despite the fact that our economy has yet to experience the consequences of the previous four rate hikes (which traditionally impact the economy six months after their implementation).
The decision of the Reserve Bank of Australia (RBA) to raise rates by an additional 1% this year has proven to be a grievous mistake.
Although inflation is currently on a downward trajectory, you may have also received a letter from your power company indicating an approximate 10% increase in energy prices. Did they not receive the memo about declining inflation?
You and I, along with the RBA, have been aware from the beginning that inflation is primarily driven by the shortage in the supply chain and essential services, a result of various inadequate government policies.
I suppose, according to the RBA’s reasoning, if we simply stop heating our homes during winter and cut back on luxuries, we will have some extra cash for our necessities.
So, what lies ahead? Given this data, raising rates again would be a foolish decision, and I anticipate that the cash rate will remain unchanged next Tuesday.
Moreover, I believe that the new government Board, set to assume control over monetary policy from the RBA in October, will likely need to swiftly implement significant rate cuts to rectify the economic mess created by the RBA.
No government desires to be in power when the country enters a recession, as it does not bode well for election strategies.
Who knows, if the inflation figure for the June quarter (to be released in late July) aligns with these numbers, could we witness rate cuts as early as September?
Implications for everyday people There is a glimmer of hope that this financial burden will alleviate sooner than we have been informed. However, it is important to acknowledge that high interest rates adversely affect individuals with mortgages.
For more information or to discuss your own borrowing power, reach out for your free, no-obligation chat.
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