With inflation in Australia sitting at 7 per cent, the RBA board has determined that another cash rate rise is appropriate in order to “provide greater confidence”.

However, the raise will be of little comfort to mortgage holders, who are paying on average $15,000 per year more than they were one year ago.

Mimicking its statement from May, the RBA board said that inflation was “still too high” and “it will be some time yet before it is back in the target range”. Still, it notes that inflation has “passed its peak”.

As this is the 12th cash rate raise since last May, the board acknowledged that Australians were doing it tough, but noted that the raise was necessary to quell inflation which “makes life difficult for people and damages the functioning of the economy”.

“It erodes the value of savings, hurts family budgets, makes it harder for businesses to plan and invest, and worsens income inequality. And 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,” RBA Governor Philip Lowe said.

“Recent data indicate that the upside risks to the inflation outlook have increased and the Board has responded to this. While goods price inflation is slowing, services price inflation is still very high and is proving to be very persistent overseas. Unit labour costs are also rising briskly, with productivity growth remaining subdued.”

The raise comes alongside unemployment levels in Australia of around 3.7 per cent as of April as well as rising wages for the private sector. According to bargaining data released by the Department of Workplace Relations and Employment in May, more than 228,000 employees benefitted from new 1,075 enterprise agreements struck in the December quarter.

Lowe noted that growth in the Australian economy had slowed and that conditions in the labour market remained “very tight”.

“Firms report that labour shortages have eased, although job vacancies and advertisements are still at very high levels,” the RBA Governor said.

“Wages growth has picked up in response to the tight labour market and high inflation. Growth in public sector wages is expected to pick up further and the annual increase in award wages was higher than it was last year.

“At the aggregate level, wages growth is still consistent with the inflation target, provided that productivity growth picks up.”

In this context, Lowe said he was alert to “the risk that expectations of ongoing high inflation contribute to larger increases in both prices and wages”.

“Especially given the limited spare capacity in the economy and the still very low rate of unemployment,” Lowe said.

“Accordingly, it will continue to pay close attention to both the evolution of labour costs and the price-setting behaviour of firms.”

In the long-term, the RBA says its target for inflation is around the 2 to 3 per cent mark, but that “the path to achieving a soft landing remains a narrow one”.

“A significant source of uncertainty continues to be the outlook for household consumption. The combination of higher interest rates and cost-of-living pressures is leading to a substantial slowing in household spending,” Lowe said.

“Housing prices are rising again and some households have substantial savings buffers, although others are experiencing a painful squeeze on their finances. There are also uncertainties regarding the global economy, which is expected to grow at a below-average rate over the next couple of years.

“Some further tightening of monetary policy may be required to ensure that inflation returns to target in a reasonable timeframe, but that will depend upon how the economy and inflation evolve.”

Ordinary working people are bearing the brunt…they shouldn’t bear the blame

Federal Treasurer Jim Chalmers has since responded to today’s interest rate hike, and has called for “strong, sustainable, responsible wages growth” to shore up the nation’s economy.

He also recognised how those that will suffer the most from the latest raise will be “ordinary working people” who “shouldn’t bear the blame” for the RBA’s move which will put pressure on mortgage holders.

His statements come one day ahead of the release of the national accounts for March, which are tipped to show a softening or moderating of growth in the Australian economy.

“We have been anticipating and we have been upfront that we expect a substantial slowing in the economy over the next 12 to 18 months; it’s in our forecasts,” the Treasurer said.

“That’s the inevitable consequence of higher interest rates biting at the same time as the global economy is a precarious place.

“There are a number of factors weighing heavily on our economy. In the last little while alone we’ve seen a couple of weak retail figures, quite a weak construction figure, unemployment ticked up a bit even though it still has a three in front of it which is a good thing overall.”

He added that he would like to see “responsible” and “sustainable” wages growth in-line with inflation alongside an uptick in productivity.

“The Governor of the Reserve Bank says today and the Board says today in their statement that wages growth is still consistent with the inflation target and they say we need to see productivity growth pick up – that’s the position of the government; we want to see a more productive economy,” Chalmers said.

“We’ve had the absence of productivity growth and the absence of wages growth for the best part of a decade – we’d like to see both.”