After paying upwards of $10 for iceberg lettuces and enduring eight rate of interest hikes in a row in 2022, households are apprehensive about Australia’s financial prospects within the new yr.
The trail forward for inflation is on the middle of financial fortunes domestically and world wide as central banks attempt to gradual their economies gently and keep away from a recessionary crash touchdown.
In Australia, headline inflation got here in at 7.Three per cent within the third quarter however a softer 6.9 per cent month-to-month learn in October may very well be an indication the inflation surge has handed its peak.
Checkout ache
However Treasurer Jim Chalmers warns the indicator is but to select up inflated grocery costs attributable to the newest spherical of flooding, nor rising power costs, that are prone to present up within the ultimate quarter.
If inflation continues to rise, so will rates of interest, which deepens the chance of a recession.
Whereas a recession just isn’t anticipated in Australia – in contrast to different components of the world, reminiscent of Europe and the US – the nation’s development is anticipated to gradual to round 1.5 per cent over 2023 and 2024 as per the Reserve Financial institution’s predictions.
AMP Capital economist Shane Oliver says there’s motive to be optimistic that inflation will taper off pretty quickly and maintain a lid on price rises, with provide chain pressures easing and indicators of labor markets topping out from their excessive peaks.
He mentioned it will doubtless solely take a slight pull-back in labor demand to alleviate wages development stress and take ballooning pay packets out of the inflationary equation.
However Australia just isn’t out of the woods.
Together with an unclear trajectory for the labor market – underlined by a sizzling November studying – NAB economists say pent-up demand for providers additionally poses a query mark and will complicate issues for the RBA.
Eyes on China and Ukraine
Different uncertainties weighing on Australia’s financial future embody China’s rocky emergence from COVID-19, how the conflict in Ukraine performs out and what street the Federal Reserve takes to handle the US inflation state of affairs.
Domestically, ANZ economists level to the federal government’s efforts to take the sting off power costs, the transition to a low-carbon financial system, the Might funds and the assessment of the RBA as points to observe.
A sharper-than-expected fall in residence costs might additionally spark monetary stability points because the households fall off the fixed-rate mortgage cliff and unemployment begins to rise.
On the long-awaited pause in rate of interest hikes, there’s some disagreement about when that can occur.
One other hike in February is broadly anticipated, with the case bolstered by strong November jobs figures.
Commonwealth Financial institution economists anticipate to see only one extra 25 foundation level hike, citing the lagging impact of price hikes as a key motive to hit the brakes and see how the financial system responds.
NAB economists see the money price peaking at 3.6 per cent in March, and ANZ and Westpac groups anticipate one other 75 foundation factors price of hikes, taking the money price to three.85 per cent in Might.
-AAP
