Tuesday 14 June 2022 11:40 PM Reserve Bank governor Philip Lowe warns Australian inflation will rise to 7% by ... trends now
Reserve Bank governor Philip Lowe has warned Australians brace for higher than expected interest rates, as inflation soars to levels unseen in 32 years.
Dr Lowe said he is now expecting inflation to hit seven per cent by the end of 2022 - which would be the highest level since the June quarter of 1990 ahead of a recession the following year.
That is also much higher than the existing rate of inflation of 5.1 per cent - itself the highest since 2001 as average petrol prices climbed above $2 a litre.
In his first appearance since the RBA raised the cash rate by half a percentage point, Dr Lowe admitted bringing inflation within the central bank's target would be difficult.
'At the moment, it's five per cent and by the end of the year, I expect inflation to get to seven per cent,' he told the ABC's 7.30 program in a rare interview.
'That's a very high number and we need to be able to chart a course back to two to three per cent inflation.
Australians have been warned to be prepared for higher mortgage rates. Pictured are houses in Melbourne
'I'm confident we can do that but it's going to take time.
'With inflation being as high as it is, and with interest rates as low as they are, we thought it was important to take a decisive step to normalise monetary conditions and we did that at the last meeting.'
He said it is reasonable to expect the cash rate will get to 2.5 per cent at some point, but said it will be driven by events.
The cash rate now stands at 0.85 per cent after the RBA raised it at consecutive board meetings in May and June from a record low 0.1 per cent.
It was only last year the RBA had been expecting to keep the cash rate low until 2024, but Dr Lowe said that was never a promise.
'The economy didn't evolve as we expected. It's been much more resilient and inflation has been higher. We thought we needed to respond to that,' he said.
He said the economy is in remarkable shape with the unemployment rate at a 48-year low, of 3.9 per cent, households having built up financial buffers of around $250 billion and the number of people falling behind on their mortgage repayments declining.
His comments came as global share markets are in turmoil fearing the US economy could fall into recession if the Federal Reserve raises interest rates aggressively to combat its own
