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Reserve aims to hose down jittery markets over inflation, rates fears

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A spike in the unemployment rate and renewed worries over the inflation outlook have put a dent in consumer confidence.

 

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The weekly ANZ-Roy Morgan consumer confidence index – a pointer to future household spending – fell 2.8 per cent.

Confidence was down in NSW, Victoria, South Australia and Western Australia, and was up only slightly in Queensland.

The consumer inflation expectations index also rose 0.1 percentage point to five per cent, returning to the seven-year high seen in October.

ANZ head of Australian economics David Plank said the fall in confidence likely reflected last week’s weaker-than-expected labour force report that showed the unemployment rate jumping to 5.2 per cent from 4.6 per cent.

“Elevated inflation expectations may also be dragging sentiment down, particularly given the headlines about global inflation pressures following the rise in the US CPI,” Mr Plank said.

The US consumer price index soared to an annual rate of 6.2 per cent in October, the fastest pace since 1990, raising expectations of an interest rate rise by the US Federal Reserve.

Financial markets have also speculated that the Reserve Bank of Australia will raise the cash rate as early as next year after domestic underlying inflation rose to 2.1 per cent in the September quarter.

This was the fastest pace in six years, taking inflation within the RBA’s two to three per cent target.

However, the minutes of the RBA’s November 2 board meeting released on Tuesday reiterated that underlying inflation was expected to pick-up only gradually, reaching 2.5 per cent by the end of 2023.

The board remains committed to achieving a return to full employment and inflation consistent with the target.

“For inflation to be between two and three per cent on a sustainable basis, the labour market will need to be tight enough to generate materially higher wages growth than at the time of the meeting,” minutes say.

“The board will not raise the cash rate until these criteria are met, and is prepared to be patient.”

RBA governor Philip Lowe will get the opportunity to calm fears of an inflation outbreak in Australia in a lunchtime address to Australian Business Economists webinar.

Despite the dip in confidence, Australian Retailers Association chief executive Paul Zahra remains optimistic about the Christmas shopping season.

Retail spending grew 2.8 per cent in October to be 4.2 per cent higher than a year earlier, according to Mastercard SpendingPulse, which measures in-store and online sales.

The end of COVID-19 lockdowns in NSW, Victoria and the ACT were staggered over October.

“There’s a lot of pent-up demand in these location with consumers back out in droves,” Mr Zahra said.

“We’re set for a positive Christmas, despite the numerous COVID setbacks in 2021.”

With a federal election looming, Scott Morrison has warned inflation and interest rates could go up by more than necessary if the recovery is not managed by people who have a record in economic management.

Asked on Sydney FM radio whether the prime minister was right that inflation and petrol prices would go up under Labor, Opposition Leader Anthony Albanese said: “Oh, God, he’s full of nonsense.”

“He’s got to stop making things up,” he said.

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