Rising electricity costs are on the mind as the Reserve Bank (RBA) attempts to bring down the rising rate of inflation.

The outlook for domestic energy prices was something the RBA was “watching closely”, Deputy Governor Michele Bullock said at the EBA’s annual dinner in Sydney.

“Sharp increases in retail gas and electricity prices next year are expected to directly add more than one percentage point to headline inflation in the year to September 2023,” said Mrs Bullock.

Ms Bullock warned that there is “uncertainty” around energy and supply shocks that could impact inflation, which the RBA had not factored into its forecast.

“Although gas prices have been falling lately, they are likely to rise again, particularly if there is an unusually cold winter or if Russia’s war on new real crime escalates. Higher energy prices may help our export earnings, but they could also put upward pressure on electricity prices in Australia, adding to inflationary pressures,” she said.

“We have factored in a sharp rise in electricity prices into our central inflation scenario, but there is a risk that we have not sufficiently factored in the other side of the coin.”

Despite soaring energy costs, Ms Bullock said the RBA expected inflation to peak at the end of the year, with the consumer price index expected to reach 8% d here Christmas.

The RBA has raised interest rates since May in a bid to combat rising inflation, with the cash rate now standing at 2.85%.

However, the bank’s forecast does not see Australia returning to its inflation target of 2-3% through 2025, with CPI expected to stand at 3.2% at the end of 2024, despite rising rates. of interest.

Australians are also expected to continue to be hit by rising rental costs as vacancy rates fall to historic lows in many capital cities.

“Now rent price inflation has also accelerated and is expected to increase further in the coming quarters,” she said.

“Almost a third of Australian households rent and many of these households have relatively low incomes and wealth, so higher rents could push some tenants into financial hardship, especially when combined with pressures wider on the cost of living.”

Ms Bullock also warned that rising food prices could continue to hit Australians as they leave, with the current flood crisis wiping out crops.

“With above average rainfall expected over the next few months in line with the ongoing La Nina event, there is also an increased likelihood of further supply disruptions affecting costs and prices for a range of products. in 2022 and early 2023,” she said.

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