TERRY’S VIEW – Rate Rise No Surprise

The Reserve Bank of Australia announced an increase in interest rates this week.

Australians will pay higher interest rates because inflation is rising. The blame for that sits squarely on the shoulders of the Federal government, which has failed on housing policy, power prices and its own spending discipline.

Underlying inflation is now 3.4% – well above the Reserve Bank’s target and higher than forecast. Headline inflation is 3.8%.

This is not a one-off blip but a clear signal that inflation is becoming embedded again and rates are almost certain to lift more than twice this year.

Australians are told to blame global forces, supply chains or temporary shocks for rising inflation but the causes are much closer to home. Inflation is being driven by the costs households cannot escape: housing, electricity, services and food – exactly the areas where government policy has failed.

Housing costs are surging because governments have not increased supply in any meaningful way – it’s a major policy failure. When housing costs rise, inflation rises and interest rates follow. It is that simple.

The Treasurer insists inflation is being driven by private-sector demand rather than government spending. That argument no longer stacks up. When government spending is expanding faster than the economy’s ability to supply goods, services and housing, it pushes prices higher.

The RBA bears its share of responsibility. Cutting rates three times last year now looks premature. It reignited demand at the wrong time, while unemployment was still low and the labour market tight.

The RBA is now boxed in. With inflation rising again and credibility on the line, it had little choice but to act.