How Jim Chalmers ‘cost of living’ budget could badly backfire – forcing the Reserve Bank to raise interest rates, prolonging the cost of living crisis AND causing a devastating rent spike
- Reserve Bank could still raise rates despite rent help boost
- Experts say rent assistance will won’t make rent affordable
The Reserve Bank of Australia could still raise interest rates again with an economist warning a 15 per cent boost in Commonwealth Rent Assistance could worsen price pressures.
Labor has pledged $2.7billion over five years to increase the maximum rate of help for struggling renters, equating to $31 a fortnight, as part of the Budget focused on addressing cost of living pressures.
CoreLogic’s head of research for Australia Eliza Owen said the federal government’s rent assistance plan could in fact worsen the rental crisis as JobSeeker was also boosted by $40 a fortnight from September – on top of the twice-yearly indexation for inflation.
‘With housing supply initiatives not scheduled until 2024, and no ceiling on rent increases for private landlords, there is a greater risk of these income supplements simply putting further upward pressure on rent values,’ she said.
Credit ratings agency S&P Global Ratings director Anthony Walker warned Budget handouts would see inflation remain higher for a year longer than expected by both Treasury and the Reserve Bank.
‘We expect inflation to be stubbornly higher than the Reserve Bank of Australia’s target until fiscal 2026,’ he said.
Four days before Tuesday night’s Budget, the RBA warned more expensive rent could add to inflation.
‘Rent inflation is expected to continue to pick up over the next year or so, and to add materially to inflation over the forecast period,’ the Reserve Bank said in its Statement on Monetary Policy.
The Reserve Bank of Australia could still raise interest rates again with an economist warning a 15 per cent boost in Commonwealth Rent Assistance could worsen price pressures (pictured is Treasurer Jim Chalmers with his wife Laura and their children in the House of Representatives)
RBA Governor Philip Lowe has also left open the possibility of another rate rise, after this month raising the cash rate for the 11th time in a year to a new 11-year high of 3.85 per cent.
‘Some further tightening of monetary policy may be required to ensure that inflation returns to target in a reasonable timeframe, but that will depend upon how the economy and inflation evolve,’ he said.
Ms Owen said the $31 a fortnight increase in Commonwealth Rent Assistance for 1.35million households from September would be insufficient to help rental affordability, with SQM Research data showing a 1.1 per cent rental vacancy rate in capital city markets.
Sydney’s median weekly apartment rent climbed by 30.1 per cent in the year to April to $654.45 following the return of international students and Treasury expectations a record 400,000 migrants will arrive in Australia in 2022-23.
Labor has pledged $2.7billion over five years to increase the maximum rate of help for struggling renters (pictured is a Sydney rental queue)
RBA Governor Philip Lowe has also left open the possibility of another rate rise, after this month raising the cash rate for the 11th time in a year to a new 11-year high of 3.85 per cent (he is pictured with Perth philanthropist Janet Holmes a Court)
Treasury is more optimistic than the Reserve Bank about inflation easing, after hitting at 32-year high of 7.8 per cent in December before dropping to 7 per cent in the latest quarter.
The Budget papers had the consumer price index moderating to 6 per cent by June 2023 and 3.25 per cent by June 2024 – putting it only slightly above the RBA’s 2 to 3 per cent target.
Treasury had inflation falling to 2.75 per cent by June 2025.
But the Reserve Bank’s Statement on Monetary Policy was slightly less optimistic, predicting headline inflation easing to 6.25 per cent by June 2023 falling dropping to 3.5 per cent by June 2024.
The CPI wasn’t expected to slide back to 3 per cent until June 2025.
Westpac economists noted Treasury was basing its more optimistic forecasts on cost of living measures like the Energy Price Relief Plan, the increase in Commonwealth Rent Assistance and Pharmaceutical Benefits Scheme subsidies reducing headline inflation by 0.75 percentage points.
‘These measures are not expected to add to broader inflationary pressures,’ it said.
