New insights about interest rates and taming inflation have appeared as RBA Governor, Michele Bullock appeared before the Economics Committee.
Primarily, concerns about the new changes to Labour’s Stage Three Tax Cuts fuelling inflation have been addressed. Although previously benefitting higher income earners the most, changes passed by the federal cabinet have seen middle income earners become the biggest beneficiaries. As outlined by CBA’s Head of Economics, Gareth Aird, “Tax cuts will add demand to the economy…But they will kick in at a time when demand has further weakened”. Hence, this reinforces Bullock’s sentiment that there will likely be little “material impact on inflation or our forecasts”.
Furthermore, despite inflation falling to a two year low of 4.1%, it remains above the target 2-3% band. Thus, Bullock’s current forward guidance is that “the board hasn’t ruled out a further increase in interest rates, but neither has it ruled it in”. Acknowledging the mortgage pressures faced by households, Bullock outlines the opportunity cost of lowering rates so soon to be prolonged high inflation, which is even worse for households in the long term.
Finally, an ACTU Report has found that major corporations are potentially engaging in price gouging amidst a low competition environment. When questioned about this, Bullock remained neutral in her response citing how the RBA is “not in a position to make a judgement on that”, and instead, should be addressed by the Australian Competition and Consumer Commission (ACCC). Australia’s major supermarkets are currently subject to both federal and state inquiries, in conjunction with a 12 month investigation by the ACCC. Therefore, depending on their findings, potential for Australian microeconomic reform may manifest in the form of Competition Policy.