Fears further rate rises could grind Australia’s economy to a halt

Acknowledging the RBA’s “commitment to making sure high inflation is not entrenched,” Mr Groves declared the opposite end of this spectrum is “the risk that the economy grinds to a halt.”

Citing the RBA’s own admission that “monetary policy is a blunt instrument that takes more than a year to work its way through the economy,” he called for the central bank to utilise the recent CPI data as motivation to “pause on interest rate hikes” until “further evidence of the lagged impact that past increases have had” is revealed. 

Over the 12 months ending January 2023, the ABS’ CPI rose 7.4 per cent, down 1 per cent on December’s 8.4 per cent figure and “below both the budget forecast and the RBA’s forecast,” according to Mr Groves. 

He outlined that the latest results “point to a slowing down in the rate of increase”, with this reduction more evident with the exclusion of “the volatile items of fruit and vegetables and automotive fuel” which would put January’s CPI increase for the year to a lower 7.2 per cent. 

“The monthly figure is down to 0.4 per cent on December’s and down 0.1 per cent in seasonally adjusted terms — the first decrease in the seasonally adjusted figure since February 2021,” he said.

According to the ABS’ data, the largest contributors to January’s results were housing, which recorded a 9.8 per cent increase in the 12 months to January (down from 10.1 per cent in December), non-alcoholic beverages (8.2 per cent), and recreation and culture (10.2 per cent).

“Rents continued to rise with a monthly increase of 0.7 per cent and an annual increase of 4.8 per cent compared to the 12 months to December of 4.1 per cent,” he said.

Mr Grove added the recently released gross domestic product (GDP) figures from the ABS indicated a “slowdown in the momentum of the Australian economy.”

“Whilst GDP rose 0.5 per cent in seasonally adjusted terms in the December quarter of 2022 and by 2.7 per cent for the year, growth has slowed in each of the last two quarters,” he concluded.