NATIONAL interest rates are the highest they have been in 11 years after rates rose to 4.1 per cent.
This comes after the Reserve Bank of Australia (RBA) decided to increase the cash rate target by 25 basis points on Tuesday, May 30.
RBA governor Philip Lowe said though inflation was “past its peak” in Australia sitting at 7 per cent, the increase in interest rates now provided greater confidence inflation would return to the target of 2 to 3 per cent within a reasonable timeframe.
Mr Lowe said high levels of inflation proved to be damaging for the economy and made the lives of people more difficult.
“It erodes the value of savings, hurts family budgets, makes it harder for businesses to plan and invest, and worsens income inequality,” he said.
“And if high inflation were to become entrenched in people’s expectations, it would be very costly to reduce later, involving even higher interest rates and a larger rise in unemployment.”
He said while goods prices were slowing, there was still a high level of inflation for service prices.
Mr Lowe said the growth in wages was a response to the higher levels of inflation.
“The Board remains alert to the risk that expectations of ongoing high inflation contribute to larger increases in both prices and wages, especially given the limited spare capacity in the economy and the still very low rate of unemployment,” he said.
“Accordingly, it will continue to pay close attention to both the evolution of labour costs and the price-setting behaviour of firms.”
