The Reserve Bank will not look favourably on the government's decision to boost childcare wages given its growing inflation fears, according to a former assistant governor.
The federal government 's move to increase wages of childcare workers comes amid concern for the RBA about persistent inflation, and former assistant governor Luci Ellis says it would worry the bank.
That fear prompted Governor Michele Bullock to declare on Tuesday that an interest rate cut was unlikely until at least February. "It's not, because what it will do is keep costs down," he said, adding it could help productivity by boosting the availability of child care and supporting parents to return to work.
"Public demand is forecast to be stronger than previously expected, reflecting recent public spending announcements by federal and state and territory governments," the statement read. "Against that … Many other prices are just marked on whatever inflation was last year. That does mean that prices don't rise as much next year, so it does help a little bit."
"It's not just about the workers, it's about the process and the building material … The cost of development is so high that a lot of housing projects are unviable.""The important thing is less about the size of the total government spend and more about governments, and state governments in particular, trying to deliver these infrastructure projects when we have capacity constraints in the construction industry.
"From budget to budget, often you'll find that there are tweaks made to the infrastructure pipeline … But our major focus here is on building the infrastructure and the housing, not the infrastructure or the housing.""Of course we want to build infrastructure and housing, but we have to prioritise when it comes to what we can realistically deliver."
But the RBA has the opposite worry about many households with mortgages. In its statement, it noted mortgage holders had become wealthier even in the face of interest rate rises because the price of their homes had also risen. This focus on the signs of "heat" in the economy contrasts with the government's focus on signs of weakness.Mr Nugent is more pessimistic about the prospect of rate cuts than the RBA, with NAB forecasting a May rate cut.He believes government spending has "made it challenging … A lot of the policy interventions are reducing the squeeze on households. The purpose of that is to relieve cost-of-living pressures but in the aggregate, it can contribute to inflation".
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