Last week, Treasurer Jim Chalmers said his upcoming budget would have to deal with both inflation and sluggish economic growth.
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Langcake said the rejigged stage 3 tax cuts, which start from July 1, would have a large impact on households, particularly those on lower incomes who are more likely to spend their windfalls.
He said the Reserve Bank was unlikely to start cutting official interest rates until the final three months of the year because of inflation concerns.
“Cost pressures on the services side of the economy remain elevated, and rent inflation is set to continue at a brisk pace. Until these upside uncertainties resolve, the RBA will be reluctant to ease policy.”
But Westpac chief economist Luci Ellis, a former assistant governor of the Reserve Bank, said the coming tax cuts and likely reductions in interest rates would only restore some of the hit to household incomes.
She said the economy was likely to expand by only 1.6 per cent this year after 1.5 per cent growth last year.
Westpac chief economist Luci Ellis expects some relief for households with lower interest rates and tax cuts in the second half of the year.Credit: Janie Barrett
“Unemployment will be rising, wages growth slowing, and the economic experience of households more broadly will still be uncomfortable,” she said.
HSBC Australia chief economist Paul Bloxham, a former Reserve Bank economist, said he expected the bank to continue its gradualist approach to getting inflation down while maintaining unemployment at a relatively low level.
He said while recent data showed current interest rate settings had slowed growth and weakened demand, the bank would still be concerned about inflation remaining higher for longer.
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“The slowdown in growth and loosening in the jobs market are helping to drive inflation towards the RBA’s 2-3 per cent target band. However, this is happening only gradually, and inflation remains too high,” he said.
“We expect the RBA to remain on hold in March and the board discussion to be about whether another hike is needed, rather than about any prospect of rate cuts.”
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Source Agencies
