Australia’s consumer price index jumped 2.1% in the first quarter of 2022, with food, petrol and other consumer goods prices rising.
Ian Waldy Bloomberg | Getty Images
Australia has raised its interest rate for the first time in more than a decade, a widely anticipated move with rising consumer prices.
Its central bank said on Tuesday that the interest rate would be raised by 25 basis points to 0.35%, the first interest rate increase since November 2010.
Philip Lowe, governor of the Reserve Bank of Australia, said it was time to begin withdrawing some of the “emergency cash support” that had been introduced to help the Australian economy during the pandemic.
“The economy has proved resilient and inflation has risen faster and to a higher level than expected,” Lowe said in a statement. “There is also evidence that wage growth is rising. Given this and the very low level of interest rates, it is appropriate to start the process of normalizing monetary conditions. “
The rise is more than analysts forecast by 15 basis points to 0.25%, according to the average forecast of a Reuters survey among 32 economists.
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Analysts had high expectations that the central bank would raise interest rates, given the rapid rise in inflation. Prices for food, petrol and other consumer goods have risen in the last quarter.
Australia’s consumer price index jumped 2.1% in the first quarter, exceeding expectations for an increase of 1.7%, data showed last week. On an annual basis, consumer inflation rose by 5.1% – the highest since 2001 and higher than expected increase of 4.6%.
Lowe acknowledged in his statement that inflation has risen more than expected, although it remains lower than in most other developed economies.
“This rise in inflation largely reflects global factors. But domestic capacity constraints are playing an increasing role and inflationary pressures have widened, with firms better prepared to move through rising spending on consumer prices,” he said.
Prices are expected to rise further in the short term, but as supply disruptions are resolved, Lowe said inflation is expected to fall back to the country’s target range of 2% to 3%.
Australia’s gross domestic product forecast also “remains positive” and is expected to grow by 4.25% in 2022 and 2% next year, Lowe said. However, he noted that there is uncertainty that could affect the world economy, such as the war between Russia and Ukraine and the Covid disturbances in China.
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