What a Difference a Month Makes – RBA Forecast Differs Radically from Treasurer’s Pre-Election Budget

They say a week is a long time in politics, and it turns out that a month is an eternity when it comes to economic forecasts.

Just under six weeks ago, Treasurer Josh Frydenberg presented a pre-election budget.

A few weeks later, the Treasury and the Department of Finance independently signed off on a pre-election budget outlook with essentially the same economic forecast.

Today, just a month later, the Reserve Bank released its latest forecast, which is a stark departure from its previous outlook, as well as the much more recent Treasury forecast.

The key change, of course, concerns inflation: the main reason the Reserve Bank quickly moved from, as recently as the end of last year, expecting no rate hike before 2024, and in February saying he would be “patient” on tariffs, to implement the first hike in more than 11 years this week.

RBA Governor Philip Lowe acknowledged on Tuesday that the rate hikes had come much earlier than the bank’s previous forecast.(ABC News: John Gunn)

While, in its previous quarterly statement on monetary policy in Februarythe RBA expected consumer price inflation to peak at 3.75% in June, he now expects inflation to hit 5.5% this quarter and continue to rise to 6% by the end of the yearpartly due to the expiry of the six-month reduction in excise duties on motor fuels which is currently holding down gasoline prices.

After expecting his preferred measure of consumer prices, which excludes the most volatile moves, to peak just above target in June at 3.25%, he now expects this figure will reach 4.75% by the end of the year.

More worrying for the central bank, this measure is not expected to fall back to the top of its target range of 2 to 3% before June 2024, a point underlined by RBA Governor Philip Lowe during his press conference on Tuesday.

And even this forecast is based on the assumption that interest rates will increase several times over the next two years.

Traditionally, the RBA has used market prices as the basis for the interest rate path used in its forecasts, but traders are pricing in a spot rate well above 3% next year, which almost all local economists consider highly unlikely.

Post , update

#Difference #Month #RBA #Forecast #Differs #Radically #Treasurers #PreElection #Budget

Leave a Comment

Your email address will not be published. Required fields are marked *