RESERVE BANK LIFTS RATES

The Reserve Bank board has decided at its June meeting to raise the cash rate by 25 basis points to 4.1 per cent, the highest point since April 2012.

* The RBA says wages growth has picked up in response to the tight labour market and high inflation, with public sector wages set to rise and the annual increase in award wages higher than it was last year

* But at the aggregate level, wages growth is still consistent with the inflation target, provided productivity growth picks up

* The path to a “soft landing” in getting inflation back to two-to-three per cent “remains a narrow one”

* The consumption outlook is “a significant source of uncertainty”, as is the state of the global economy

* The RBA says it needs to take action because high inflation “erodes the value of savings, hurts family budgets, makes it harder for businesses to plan and invest, and worsens income inequality”

* “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”

* While goods price inflation is slowing, services price inflation is still very high

Paul Osborne
(Australian Associated Press)