Reserve Bank forecast: grim reason 140,000 Aussies will be unemployed amid stubborn inflation and skyrocketing rents

The Reserve Bank warns that the fight against inflation has a long way to go as a shocking report reveals that rising rents and higher utility bills are expected to weigh on household budgets as unemployment rises.

In its quarterly statement on monetary policy, released Friday, the Reserve Bank downgraded its short-term forecasts, with economic growth expected to falter further.

The unemployment rate is also forecast to rise, with the RBA noting that an additional 140,000 people are expected to be unemployed by June 2025.

Apart from the economic shock during COVID-19, the Australian economy is expected to grow at its slowest pace since 1992.

In May, the central bank expected the economy to grow by 1.2 percent in 2023, before growing slightly to 1.4 percent in fiscal year 2023-2024.

But according to new forecasts, the bank has revised its forecasts and now expects the economy to grow by just 0.9 percent by the end of the year. GDP growth will reach 1.6 percent by the end of 2024 and 2.3 percent by the end of 2025.

While a new set of inflation data released by the ABS in July fell 6 percent below traders’ expectations, the Reserve Bank’s inflation outlook has barely changed from three months ago.

It will take until mid-2025 for inflation to reach the Reserve Bank’s target range of 2-3 percent.

Rent costs, which are a primary contributor to broader measures of inflation, are expected to rise further in the period ahead as rental vacancy rates remain extremely low and new homes cannot keep pace with rapid population growth.

“Strong population growth is occurring at a time when the rental market is already very tight and it will take time for supply to respond,” the statement said.

“Rental inflation is expected to continue to pick up over the coming year and contribute significantly to inflation over the forecast period.”

Energy prices are expected to exacerbate cost-of-living tightness in the coming year, but rebates and subsidies will take some of the energy bill pain away.

“The impact of increases in electricity prices … will be partially offset by government rebates under the Australian Government’s Energy Price Reduction Plan and various state government initiatives,” the report said.

The RBA said wage costs in Australia would hit their fastest pace in a decade as workers’ pay packages struggled to keep up with the rising cost of living.

People with jobs are also seeking food aid more often than in the recent past and higher interest rates have contributed to an increase in demand for services from people with mortgages.

However, the central bank also warned that recent government intervention on minimum and wage wages could serve as a benchmark for the entire economy. In this scenario, inflation would be ‘persistently higher’ until the end of 2025.

Despite experiencing 12 rate hikes since May 2022, households must brace for future rate hikes after the RBA said Australia could not yet declare victory against runaway price pressures.

“Some further monetary policy tightening may be needed to ensure inflation returns to target within a reasonable time frame, but that will depend on data and evolving assessments of risk,” the report warned.

“The board remains resolute in its determination to bring inflation back to target and will do whatever is necessary to achieve that result.”