We’re officially half way through 2023 and more than a year into these pesky cash rate rises. 

When the cash rate started going up in May last year, we were all still reeling over Top Gun Maverick.

14 months later, this month, the RBA has spared us, leaving the cash rate untouched for the second month this year.

But over a year into the cash rate rises, let’s do a stocktake. 

How well are they working and what changes are we actually seeing in the Australian economy?

1. Back up a second, remind me how much the cash rate has changed first.

Let’s flashback to the days of 2020, when we were all doing our paint by numbers, going on our mental health walks, and watching Tiger King.

When the pandemic hit, it slowed the Australian economy down to an almost hibernation point. 

To keep the economy stimulated, the RBA brought the interest rates down slowly from 0.75% in February 2020 to its lowest point, 0.1% in November 2020.

At that time, with a lot of uncertainty around the economy, the RBA Governor Phillip Lowe said the interest rates would remain low till 2024.

But then the RBA pulled a plot twist.

The economy started opening up, there were global supply chain issues, and the Russia Ukraine war.

All these factors were pushing up prices overall and increasing inflation.

So in May 2022, the RBA decided to pull the plug and start pushing up the cash rate to cool inflation (here’s a quick explainer on how that actually works).

The RBA has since raised rates 12 times in the last 14 months to 4.10%.

2. Wild. So what has happened to inflation in that time?

Before the pandemic, inflation was at 2.2% and for context, the RBA’s target inflation rate is between 2%-3%. 

When the economy slowed in 2020, inflation dropped to below 1% for most of the year, and then picked up dramatically to 5.1% in March 2022 after the Delta COVID-19 wave.

That’s when we started feeling the pain of paying over $5 for small coffee and our grocery bills had us tearing up more than when watching Up.

Since then, inflation’s kept on climbing and peaked at 7.8% in the December 2022 quarter, which is the highest it’s been since the late 1980’s.

Inflation didn’t start showing signs of slowing till early 2023, and it was moving slower than the RBA had hoped.

But we might be starting to finally see the light as monthly inflation dropped in May to 5.6%, it’s 13 month low.

3. What about GDP? 

Good question.

While inflation is a measure of the change in prices of goods and services, GDP measures the market value of a country’s total outputs (more on that here). 

The good news: the Australian economy is growing, specifically it grew by 0.2% in the 2023 March quarter, and annually at 2.3%.

The bad news: it’s a lower growth rate than economists were hoping for.

Yup…our economy is growing slower than Baymax trying to run.

And this isn’t too surprising, given we’ve got interest rates going up and economic activity slowing down across the world.

But the RBA has a tough job in balancing both these statistics.

They need to walk the tightrope between bringing down inflation by reducing spending, but not doing it so aggressively so as to bring down spending and the economy into a recession.

4. And what’s been happening to employment?

According to the ABS, the unemployment rate fell from 3.7% in April this year to 3.6% in May.

This was a better statistic than economists were expecting.

And with the population picking back up post-pandemic, there are now officially more than 14 million people employed in Australia.

Before the ‘rona’, we had almost 13 million people employed in the country.

But…there’s more to the story.

The rate of underemployment has gone up from 6.1% in April to 6.4% in May.

While there are more people in Australia employed, there’s also more people working in casual or part-time roles.

5. But the real question is, how many more cash rate rises is the RBA planning to hit us with?

The RBA doesn’t plan to slow down until they hit their target of 2%-3% inflation, and that’s likely to happen around 2024-25.

A panel of 27 leading economists brought together by The Conversation reckon the RBA has got two more cash rate rises in them.

That would take us to a cash rate of 4.5% by the end of the year before the rates start coming down.

But the good news is the economy is still showing signs of growth and the labour market is looking hella tight which are positive signs about Australia’s resilience to these tough economic times.