Household incomes 'at risk of collapse' due to high inflation, rates

The Commonwealth Bank’s chief economist, Stephen Halmarick, said there are signs the economy will struggle to cope in the second half of this year, reports The Sydney Morning Herald.

He warned the Reserve Bank of Australia (RBA) may have to begin slashing interest rates by the end of the year because the economic downturn is likely to cause a big fall in inflation and about 150,000 extra people out of jobs.

The Australian economy is set to grow by 1.6 per cent this year followed by 1.7 per cent through 2024, the IMF said.

But Halmarick forecast the impact to household incomes will mean the Australian economy will grow this year slightly lower than the IMF figure.

The RBA’s aggressive policy in lifting rates from 0.1 per cent to 3.6 per cent over the past 11 months has been a major factor in the economy slowing.

There was a pause in lifting rates this month but RBA officials have acknowledged they are struggling to curb inflation in the wake of the pandemic. According to board members, the central bank was excessively cautious in how it set interest rates.

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“Growth in real household disposable income in Australia has collapsed and is now deeply negative,” Halmarick said.

And the increase in nominal household income has been wiped out by soaring inflation, taxes increases and larger debt interest costs, he said.

Treasurer Jim Chalmers said this week global economic uncertainty would define the May 9 budget.

He flagged the federal government would make some hard decisions on cutting spending but would offer targeted cost-of-living relief measures.