RBA Says ‘Revenge Consumption’ May Raise Inflation

“If that were to happen, the unemployment rate would decline at a faster rate and to a lower level than assumed in the baseline scenario, and inflation would pick up more quickly.”

The policy responses Mr. Jones alluded to include a temporary doubling of the value of dole payments, the $ 90 billion JobKeeper wage subsidy and mortgage deferrals for households and businesses.

Financial security

Many Australian households and businesses felt more financially secure than they typically did after a recession, Mr Jones said.

Data released on Wednesday showed household consumption spending rose 1.2% in the March quarter, but remained 1.5% below pre-pandemic levels.

The household savings rate fell to 11.6%, but remained well above its pre-pandemic level of 5.4%, suggesting households were not yet depleted. the gigantic savings cushion of 200 billion dollars accumulated over the past year.

That the pandemic recession was due to state-imposed lockdowns, rather than an organic drop in consumer demand, means the current economic recovery “bears little resemblance to past downturns,” Jones said. .

“Large-scale disruptions of this nature distinguish the current episode from past global crises where private demand and parts of the financial system have collapsed under the weight of years of accumulating imbalances involving too much debt and high prices. ‘swollen assets,’ he said.

“But reflecting the unique nature of the COVID-19 shock, recent experience at home and abroad has been that economic activity has resumed after the restrictions were lifted.”

As expected, the central bank kept the policy rate target at a record 0.1 percent at Tuesday’s board meeting, and reiterated that decisions on extending its $ 200 billion bond purchase program and targeting 0.1% of the three-year yield curve would be made in July.

The RBA has maintained its conciliatory stance that the conditions for an interest rate hike are unlikely to be met “until 2024 at the earliest”, despite market guess that it might take a more optimistic tone in its post-meeting communications.

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