So, the International Monetary Fund (IMF) was in town last week and provided an external scorecard on Australia’s economic position.
The IMF believes that inflation will be higher for longer than the RBA base case scenarios. They urged the RBA to increase interest rates further and for the Labour government to reduce spending while recommending tax reform (not sure the IMF would give a pass market to the revised stage 3 tax cuts). They also recommended the removal of State stamp duties.
This highlights the increasing disconnect of governments (globally) from central banks. Governments have effectively thrown central banks under the bus, by politicising fiscal policy at a time when they should be lending a hand to monetary policy.
So what this means for business? Inflationary pressures will be higher for longer, while the lack of real reform from Canberra will not fix Australia’s productivity problem. This short termism will mean continued wages growth (without labour productivity) and this will likely impact business growth.
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