The RBA should pause on interest rate hikes at its Tuesday meeting and take stock after last year’s rapid increases while the government should continue to curb inflation directly and forcefully, says the Australian Council of Social Service.
Going too far on interest rates will ultimately put hundreds of thousands of people out of work and push more families into poverty while income supports remain woefully low.
Rather than relying on the blunt tool of interest rate rises, the government should tackle price rises at their source by reducing the cost of essentials such as rents, energy and medicine. ACOSS welcomes the recently announced curbs to gas prices for households and businesses. More must be done.
ACOSS is calling on the government to:
- Implement better regulation of the private rental market to protect against exorbitant rent increases
- Take further action to reduce energy costs by investing to make homes energy efficient for people on low incomes
- Take further action to reduce out of pocket costs such as child care and dental health services
- Invest in a jobs and training offer for the 500,000 people unemployed long-term to improve their employment prospects and ease labour shortages.
The government should also reach agreement with the RBA on a formal full employment target (low unemployment and under-employment) and give it equal priority to the Bank’s inflation target.
ACOSS CEO Dr Cassandra Goldie said that with inflation stabilising and employment slowing, the RBA must pause on further rate hikes to reduce the likelihood of a harsh economic downturn.
“High inflation is a serious challenge for people on low incomes who are already struggling to afford basic necessities such as food and shelter.
“But hiking up interest rates risks driving up unemployment, making it even harder for those seeking paid work hours.
“There are still more than 500,000 people on unemployment payments for more than a year – people who are overlooked by employers even now because of their age, disability, or caring responsibilities. They should be given a chance to find employment, not thrown back to the end of a longer job queue.
“Wages aren’t covering the essentials for many in our community right now, but the situation is much more dire for those without wages who are relying on income support.
“Given the effects of last year’s rapid and substantial interest rate hikes are yet to be fully felt, now is the time for the RBA to pause and take stock.
“The government should instead tackle inflation by addressing price rises at their source.”
Interest rate rises impact on the economy 12-18 months after they are announced. After the sharpest interest rate hikes in decades this year, there are signs that inflation is stabilising or declining.
- In the December quarter the CPI rose by 1.8%. ‘Core’ inflation or ‘trimmed mean’ CPI rose by 1.6%, compared with 1.8% for both measures in Sept 2022.
- In that quarter, the CPI was propped up largely by spending on holidays and travel, reflecting pent up demand from the pandemic. That is likely to subside.
- Retail sales slumped by 3.9% in December.
In December 2022 we saw the early signs of a slowdown in employment as employment and hours worked decreased while underemployment increased:
- Employment decreased by 15,000 workers (seasonally adjusted)
- The employment to population ratio decreased to 64.3%
- While unemployment was stable at 3.5%, underemployment rose from 5.8% to 6.1%
- Monthly hours worked decreased by 9 million to 1,888 million