Today's CPI result for the year to the end of June of 3.8% remains too high and presents a real challenge for the Reserve Bank of Australia trying to balance a sluggish economy, Innes Willox, Chief Executive of the national employer association Australian Industry Group, said today.
"Inflation has a considerable way to go before it reaches the preferred range of 2-3%. The RBA's decision on whether to again raise rates next week is very much on a knife edge," Mr Willox said.
"It is imperative for inflation to come down before higher expectations become more embedded in wage agreements, commercial contracts and government pricing.
"The RBA Board faces an unenviable decision at its meeting next week with the latest inflation reading along with the continuing strength of the labour market and the array of evidence of a sluggish short-term growth outlook.
"The relative strength of today's retail sales data from the ABS will add to concerns about price pressures while slowing housing starts showed the building sector continues to deteriorate and businesses from across the economy point to a weak outlook over coming months.
"Further interest rate rises could cause the economy to contract and will hurt households and businesses but if the Reserve Bank leaves rates on hold, there is a risk of having higher inflation for longer.
"Businesses also point to ongoing input cost pressures and wages increases that are clearly not sustainable unless productivity improves.
"For the well-being of the economy, we urge moderation in wage negotiations and pricing decisions of businesses and governments," Mr Willox said.
