Charles Sturt University economics professor forecasts more short-term toil with rising inflation, interest rates

Inflation currently sits at 5.1 per cent, a level not seen in Australia since the introduction of GST, and the Reserve Bank of Australia [RBA] rose the interest rate earlier this month for the first time in 11 years.

With further interest rate rises likely, Charles Sturt University [CSU] economics Professor John Hicks said people with loans can expect to pay more interest on a variable rate, and there could be future burdens for fixed rate holders.

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"Those on a fixed rate will be fine for a while, but once it expires, if they want to consider another fixed term, the rate will likely be considerably higher," Professor Hicks said.

"If mortgage payments go up, then residents will have to find other areas of their budget to reduce, but that's easier said than done."

Professor Hicks said the inflation situation has a lot to do with rising costs that policy makers have little to no say over.

"It's unusual. Inflation is usually a 'demand pool' situation, but at the moment it's quite clearly related to costs," he said.

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"You've got rises in gas and energy prices and supply constraints as a result of global transport issues.

"It's a lot more difficult to control inflation when it's caused by these external factors."

While wage increases have been touted as potential relief from rising inflation, Professor Hicks said it isn't the obvious answer it seems on the surface.

"Wages are business costs, and if we've got a situation where inflation is occurring because costs are going up, increasing wages will only push inflation even further," he said.

Professor Hicks said there's no doubt inflation will rise further than the current rate, but the real question will be how much.

"It's probably doubtful it'll hit the 17-18 per cent mark Australia saw in the 1970s, because the RBA is better equipped to slow inflation these days, but eight per cent is certainly not out of the equation," he said.

"Inflation is around the eight per cent level in other parts of the world at the moment, so it's conceivable inflation could rise further here."

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In one his first addresses as Treasurer, Jim Chalmers warned inflation is "high and rising."

Professor Hicks said the Treasurer's warning is clear the government expects a further rise in inflation.

"The Treasurer has also indicated Labor's more ambitious spending plans probably won't be fully implemented, presumably on the knowledge it would worsen inflation," he said.

Professor Hicks said the future of the Australian economy will depend largely on long-term solutions around productivity.

"It's a long-term proposition. You need increased education, increased training and more capital put in place, and none of these things are an overnight solution," he said.

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