00:00Today the Board decided to increase the cash rate to 4.85%.
00:04Now I know this is not the news that many Australians want to hear, but it is what's
00:10needed to get inflation down.
00:13Inflation is too high and our forecast suggests it will stay higher for longer.
00:17Part of the reason for inflation staying higher for longer is global oil prices.
00:22However, I want to be very clear that we are not tightening monetary policy because of
00:27the direct impact of oil prices on inflation.
00:30I know there is confusion in the community, so I want to be very clear.
00:34Monetary policy cannot impact global oil prices.
00:39Rather, the tightening in monetary policy is to address domestic capacity pressures.
00:44These were evident before the rise in oil prices, which is why the Board started to increase
00:49the cash rate in February this year prior to the start of the conflict in the Middle East.
00:54We now think that those pressures were greater and contributed more to inflation than we judged
00:59before.
01:01And as inflation has remained high, there is a risk that inflation expectations among households
01:06and businesses will rise, making the task of bringing inflation back down to target even
01:11more difficult.
01:13Part of the reason for those capacity pressures is that productivity growth has been weak for
01:18some time, which has constrained the economy's ability to grow without generating high inflation.
01:24But parts of demand have also been stronger than expected.
01:28In particular, investment has been much stronger than expected, including due to data-centre-related
01:34investment.
01:35This has added to inflationary pressures by adding to demand at a time when the domestic
01:40economy is already capacity-constrained.
01:44While monetary policy can't do anything about the direct effects of an oil price rise, it
01:49can help to limit the indirect effects of the rise.
01:52Fuel is an important input to many parts of the economy.
01:56So as oil prices have risen, businesses have seen their costs rise, and they are looking
02:01to pass on these costs to the prices of the other goods and services that they produce.
02:07The longer inflation remains high, the more likely it is that businesses will look to pass
02:12the higher costs on, and excess demand in the economy makes it more likely that they'll
02:17be able to do so.
02:19Prior to today's decision, the Board had already increased interest rates four times this year.
02:25Spending in the economy has slowed, housing prices have come down, and conditions in the
02:30labour market have eased.
02:32We expect, though, that growth will need to remain subdued, and the labour market will
02:36need to ease further to bring overall demand and supply back into balance, and inflation
02:41sustainably back to target.
02:44Now, I understand that today's decision is going to be difficult for Australians with mortgages,
02:48many of whom are already managing large repayments.
02:51But households with mortgages are not the only Australians doing it tough.
02:56Every household is dealing with higher prices for groceries, electricity, insurance, and other
03:01essentials.
03:03High inflation is particularly painful for Australians on lower incomes, including people who rent
03:08and have little or no savings to fall back on.
03:12When most of your income is already going towards essentials, there is nowhere left to cut spending.
03:17This is why getting inflation down matters so much.
03:21It affects everyone, but the burden is not felt equally.
03:24High inflation also damages the wider economy.
03:28It makes it harder for families to plan and for businesses to invest.
03:32And if high inflation were allowed to become entrenched, interest rates would ultimately need to stay
03:37higher for longer, with greater risks for the economic growth and jobs.
03:42As I said earlier in the year, the conflict and the resulting supply shock would make us
03:47all poorer, and that is what everyone is feeling.
03:50It means that for a given inflation rate, growth will be lower and unemployment will be higher.
03:56Again, I know this interest rate rise is tough news for many households, but this is the right thing
04:01for the Australian economy.
04:04Raising interest rates today is necessary to slow the economy and return inflation to target.
04:09It is critical that we stop expectations for high inflation from becoming embedded in price
04:14setting decisions across the economy, or the problem will only get worse.
04:18If we just let high inflation run, it will lead to even worse outcomes.
04:22Much higher prices, higher unemployment and lower growth.
04:27We are using the cash rate to stop that from happening.
04:30Some pain now will prevent even worse pain down the track.
04:34Returning inflation to target is our priority, and we will do what is necessary to achieve that.
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