Soaring rents and energy costs pose a challenge for Australia’s inflation crisis, with the head of the Reserve Bank urging action to boost power and housing supply.
RBA governor Philip Lowe said addressing these supply side pressures would help bring down inflation, with about half of the inflationary pressures in the market from aggregate demand and the other half from supply side shocks.
Addressing a Senate committee on Monday, Dr Lowe said boosting the supply of gas and electricity would help the central bank bring inflation back within the target range of 2-3 per cent.
The Albanese government has all but committed to implementing some kind of price cap mechanism to keep energy costs contained, but Dr Lowe declined to weigh in on the preferred mechanisms to bolster the supply of gas and electricity in the market.
The head of the RBA also pointed to rents as a key contributor to the consumer price index, noting that a boost in migration was colliding with fairly modest increases in housing supply.
While he recognised boosting housing supply would do little to solve short-term affordability pressures, he said boosting supply over the medium term would help manage inflation that’s expected to stick around at elevated levels for a few years.
Dr Lowe also apologised to Australians who took out a mortgage based on conditional forward guidance provided during the pandemic that predicted interest rates to remain at record low levels until 2024.
“I’m certainly sorry if people listened to what we said and then acted on what we’d said and now regret what they had done,” he said.
Dr Lowe said at the time, Australia “was in a dire situation, and we wanted to do everything we could to get the country through that, and we had a strong insurance mindset”.
Dr Lowe has come under fire repeatedly this year for the rapid rise in official interest rates. It has risen from 0.1 per cent in May to 2.85 per cent, with another rate rise expected next week.
As late as November last year, however, Dr Lowe had signalled little change until 2024.
“The community thought it was clear we weren’t raising rates until 2024,” he said.
“We didn’t communicate the caveats clearly enough … they didn’t hear the conditionality, and that was partly our fault.”
But Dr Lowe defended the RBA’s actions, with unemployment forecast to rise to as high as 15 per cent and a generation of Australian workers facing being locked out of the jobs market.
-with AAP
