Inflation, election to test confidence

by | April 20, 2022 03:30 | News

Motorists have enjoyed a rapid decline in petrol prices in the past four weeks, aided by the federal government’s temporary halving of fuel excise in last month’s budget.

However, it is unclear whether this alone will lift confidence among Australians faced with rising prices elsewhere, the threat of higher interest rates and the uncertainties surrounding a federal election.

The weekly ANZ-Roy Morgan consumer confidence index is released on Wednesday – a guide to future household spending.

While confidence has risen for two weeks in a row as petrol prices eased back from the $2 per litre, at an index below 100 it still indicates pessimists outweigh pessimists.

The Australian Institute of Petroleum said the national average for petrol prices fell by a further eight cents in the past week to 166.3 cents a litre.

However, in the minutes of the Reserve Bank of Australia’s April board meeting it warns that rising inflation may have brought forward the timing of an increase in the cash rate.

It expects measures of underlying inflation in the March quarter to be more than three per cent – above its two to three per cent target.

“These developments have brought forward the likely timing of the first increase in interest rates,” the minutes said on Tuesday.

“Over coming months, important additional evidence will be available on both inflation and the evolution of labour costs.”

The consumer price index for the March quarter is due on April 27, while the wage price index for the same period is released on May 18.

Economists are generally expecting the cash rate to increase by 0.15 per cent to 0.25 per cent at the June board meeting, ending a gradual decline in rates stretching back a decade.

However, there are concerns a very strong inflation result could see the cash rate jump by 0.4 per cent to 0.5 per cent at the May board meeting, even though it would be in the middle of a federal election campaign.

Meanwhile, the department secretaries of Treasury and Finance are due to independently release the Pre-election Economic and Fiscal Outlook on Wednesday as part of the Charter of Budget Honesty that was introduced by former Liberal treasurer Peter Costello.

However, given the budget was only released less than a month ago, forecasts for deficits and the economic outlook shouldn’t differ too much.

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