RBA slams brakes on the brakes Australia enters new cash rate cycle as inflation rises Anneke Thompson Chief Economist CreditorWatch
High inflation is currently a global phenomenon,
nations reached an average inflation rate of almost
with various structural elements combining to
eight per cent by Q1 2022. The Reserve Bank
create a perfect inflationary storm. High fuel
of Australia (RBA) appears to be particularly
costs as a result of the war in Ukraine is one
concerned about the steepness of the inflation
major factor, impacting everything from shipping,
curve, and moved to increase the cash rate on
trucking, air freight to food and manufacturing.
3 May ahead of any official data indicating wages
Ongoing supply chain disruptions and production
are starting to increase. Inflation is now well
and staffing issues associated with COVID-19
outside the RBA’s target band of two to three
are causing short term havoc. And global labour
per cent: bringing in under control will involve a
mobility has been severely impacted by the
measure of short-term pain (for borrowers) for
pandemic, with countries that typically import
long term gain as price increases are brought
a lot of labour reporting severe productivity
under control.
constraints as they make do without these employees.
Reflecting their rising risk profile due to Australia’s higher inflationary environment, the
Compared to other OECD nations, Australia’s
Food and Beverage Services, Arts and Recreation
inflationary curve was relatively modest, until
Services and Transport, Postal and Warehousing
the March 2022 quarter data was released.
Industries have all recorded an increase in their
The USA and UK are recording inflation between
Probability of Default this year. As inflation
5.5 and eight per cent. Combined, the OECD
works through the economy, it is expected that consumers will reduce spending on discretionary
“Inflation is now well outside the RBA’s target band of two to three per cent: bringing in under control will involve a measure of short-term pain (for borrowers) for long term gain as price increases are brought under control.”
items. Combined with home loans becoming ever more expensive for borrowers, we will start seeing spending patterns change, and reduce in many areas. Indeed, this is partly the aim of the RBA when they increase the cash rate. Cafés, restaurants and the arts and entertainment sectors are all typically areas where consumers choose to spend less as their discretionary income declines. AICM Risk Report 2022
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