The Australian Economy in 2022–23: Inflation and Higher Interest Rates in a Post-COVID-19 World

Abstract

Record levels of domestic and global stimulus during the COVID-19 pandemic years helped to mitigate largely unparalleled downside risks. Post-COVID-19, inflation surged in Australia due to overseas factors such as the war in Ukraine, and domestic factors such as COVID-related backlogs in the construction sector. To constrain inflation, the Reserve Bank shifted to a phase of aggressive monetary policy tightening in 2022. There are, however, cost of living ramifications associated with tighter monetary policy. Looking forward, there is significant uncertainty about the rate at which inflation will normalise, and the spending response of consumers to higher interest rates.