"Today's RBA meeting has sounded the alarm regarding the imminent stagflation risks facing Australia," said Innes Willox, Chief Executive of the national employer association, Australian Industry Group.
"The RBA's decision to lift the cash rate by 25 basis points today is only part of the story – with its fresh forecasts pointing to the coming impact of the energy crisis on the Australian economy.
"These paint a sobering picture. Economic growth is expected to slump to 1.3% p.a. by the end of the year, while business investment and household consumption will both fall. Inflation will surge to 4.8% by June and take at least a year to come back down.
"Striking an understandably worried tone, the Monetary Policy Board noted the risks to these forecasts are to the downside, with plausible scenarios where growth is even lower and inflation higher," Mr Willox said.
"Stagflation is no longer a risk to be avoided but a reality to be managed. And the solution lies not with the RBA but with the Government's forthcoming budget.
"Band-Aid solutions on budget night will not be enough to get Australia through the difficult period ahead. The Government needs to deliver a budget that marries short-term crisis relief with longer-term structural repair.
"Programs to support industry and households – introduced on a temporary basis over recent weeks – need to be made into durable policy frameworks. Long-overdue regulatory reform must be started in earnest, while tax reform needs to target productivity and growth rather than short-term revenue raising.
"There is little room for error on budget night. Without immediate action, household incomes will drop, business costs will rise and the economy will sink again," Mr Willox said.
