The RBA’s decision to lift the cash rate to 0.35% reflects the interrelated challenges of rising inflation, supply chain bottlenecks, and acute labour shortages faced by businesses across the country.
In a speech delivered hours after announcing the rate hike, RBA Governor Philip Lowe said there was now stronger upward pressure on labour costs and that this was likely to continue.
“We expect to see this in the ABS data in the period ahead. In a tight labour market, some firms are paying higher wages to attract and retain staff. This is especially so given that inflation is high and workers are experiencing cost of living pressures,” he said.
“There is still considerable inertia in the wages system from multi-year enterprise agreements and current public sector wages policies, but the direction of change is now clear.”
ACCI chief executive Andrew McKellar said the RBA’s decision to raise the cash rate for the first time in more than a decade was not only indicative of the building inflationary pressures on the cost of living but also a reminder that the cost of doing business was also increasing.
“The Reserve Bank is independent of the government and must make economic decisions as it sees them. With interest rates at extraordinarily low levels for the past few years, it was expected that the RBA would begin the process of tightening monetary policy,” Mr McKellar said.
“Having survived the pandemic, small business owners are now confronted with rising input and labour costs, forcing businesses to raise prices or absorb higher costs within already thin margins.
“Congested supply chains, exacerbated by the conflict in Europe and lockdowns in China, are continuing to drive up the cost of everything from washing machines to microchips, with small businesses bearing the brunt of these disruptions.”