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Inflation To Hit 6% By Year’s End: Reserve Bank

The Reserve Bank has revised its previous economic forecast, now anticipating the Consumer Price Index to reach 6 per cent by the end of the year.

This will be “partly driven by higher petrol prices and sharp increases in the cost of new dwellings,” according to the RBA.

The RBA had previously forecast CPI would reach 3.25 per cent.

Core inflation, the RBA’s preferred measure, is expected to hit 4.75 per cent by the end of the year, up from February forecasts of 2.75 per cent.

It expects both metrics to recalibrate to 3 per cent by mid-2024.

Unemployment is also predicted to drop to 3.25 per cent by the end of the year, down from February’s 3.75 per cent prediction.

“At its recent meetings, the Reserve Bank Board considered the rapidly evolving outlook,” the RBA wrote in its Statement on Monetary Policy.

“Inflation has increased faster than expected as global supply-side disruptions persist and multiply in the face of strong demand. Indeed, there are signs that domestic price and labour cost pressures are broadening and building. The economy has been more resilient than expected in recent months, and is much stronger now than when the current very supportive policy settings were put in place. Australia is also closer to full employment.

“The tight labour market and environment of higher inflation mean that an increasing number of firms are paying higher wages and other benefits to attract and retain staff. While aggregate wage growth picked up during 2021, it was no higher than prior to the pandemic. However, the more recent evidence from liaison and business surveys is that larger wage increases have been occurring, or are planned, in many private-sector firms.

“At its May meeting, the Board judged that some withdrawal of the monetary support provided through the pandemic and a start to the process of normalising interest rates is appropriate, given both the progress towards full employment and the evidence on prices and wages so far.

“It therefore increased the cash rate target by 25 basis points to 35 basis points. It also increased the interest rate on Exchange Settlement balances from zero per cent to 25 basis points.”

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