Economists have questioned the government’s decision to add $21 billion to the economy at a time when it is running hot, warning the RBA may need to respond.
The government says Treasury advice shows its cost-of-living package willBut Goldman Sachs chief economist Andrew Boak said the $20.6 billion net spend raised the risk of further interest rate rises.“At a time when the RBA is lifting rates to contain elevated inflation and accelerating labour costs, we assess the budget’s near-term boost to household incomes to have an incrementally hawkish read-through for monetary policy,” Mr Boak said.
One more rate rise would take the cash rate from 3.85 per cent to 4.1 per cent, making it the 12th interest rate increase, continuing the fastest tightening cycle in a generation.Betashares chief economist David Bassanese said the budget was “unambiguously expansionary” and adds to the risk the RBA will need to raise rates at least once, and possibly twice, in the coming months.
Combined with the increasing likelihood of a high minimum wage decision, signs house prices are growing again, and the resilience of the US economy, Mr Tharenou said there was an increasing risk the RBA would raise interest rates by another 0.25 percentage points in either July or August. While the federal government is scaling back its infrastructure program, Mr Blythe said a large number of expensive projects remained in place.Mr Blythe said the government’s decision to increase JobSeeker, single parent payments and aged care wages had no inflation offset.“But the hard-hearted economist will point out the potential risks of boosting household spending power and adding to labour costs at a time of elevated inflation.
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