The Reserve Bank of Australia has raised interest rates by 50 basis points, trying to curb rampant inflation with an increase that exceeded forecasts.
The decision to raise the cash rate to 85 basis points demonstrates a more aggressive stance by the central bank to deal with inflation after a moderate rise last month. This is the first time the RBA has introduced consecutive rate hikes since 2010 and the largest rate hike since February 2000.
Philip Lowe, the RBA governor, said action was needed to bring inflation back to target levels over time.
“Inflation is expected to rise further, but then drop to the 2-3% range next year,” he said. “Higher electricity and gas prices and recent increases in petrol prices mean that inflation is likely to be higher in the short term than expected a month ago.”
Inflation has been lower in Australia than in many other markets, but the cost of petrol and fresh food has begun to affect consumer confidence. KFC fast food chain said this week that it would start using cabbage leaves in Australia due to supply chain problems that have increased the cost of lettuce.
Supply problems have been driven in part by recent floods in the country that have affected the agricultural sector. Lowe said global factors, including the pandemic and the war in Ukraine, have also contributed to rising inflation as well as a tight labor market.
Jim Chalmers, Australia’s new treasurer after Labor was swept into power last month, has warned of a “disastrous” economic situation if inflation is not controlled.
Chalmers wrote on Twitter: “Difficult news for homeowners already facing soaring living costs, including rising energy prices. A better future awaits us, but we must first navigate this challenge together. inflation we have inherited and the accompanying rising interest rates. “