CANBERRA (Australia) -- Australia's central banks raised its benchmark interest rate Tuesday for the second time in five consecutive weeks. They also changed the cash rate from 0.35% to 0.85%.
The Reserve Bank of Australia raised the rate by 25% at its May 3rd monthly board meeting. This was the first rate increase in over 11 years.
After official data from April revealed that Australia's inflation rose 5.1% between March and the current year, it was widely expected that there would be an increase. This is the highest annual rate recorded since 2001 when a 10% federal consumption tax was introduced.
On Tuesday, Treasurer Jim Chalmers foreshadowed further rate increases and said that inflation in Australia would worsen.
Chalmers stated to the Australian Broadcasting Corp. that it was already clear that inflation would be much higher than the current 5.1%. This statement came hours before the bank's announcement of its rate decision.
"Inflation will get worse before they get better. Chalmers said that this is the trend we have inherited.
Chalmers' Labor Party, a center-left party, was elected to power in a May 21 election. It has criticised the amount of debt accumulated by the conservative administration.
Chalmers stated that he would provide an update on inflation to the nation when Parliament resumes on the 26th of July, the first time since the election.
Philip Lowe, Governor of the Reserve Bank, stated that inflation is not expected to fall below 3.3% before next year.
The Reserve Bank of Australia adjusts interest rate to maintain inflation within the 2%-3% target range.
"Inflation has increased in Australia significantly." Lowe stated that while inflation is lower in Australia than most advanced economies, it is still higher than expected.
Global factors are responsible for a large part of the increase in inflation, such as COVID-related disruptions in supply chains and war in Ukraine. Lowe said that domestic factors also play a part, with the increase in prices due to capacity constraints in certain sectors and tight labor markets.
The latest quarter saw inflation rise sharply to 3.5% from the previous quarter. This was due to a spike in fuel and housing prices and crop damage following recent floods.