Terry’s View: Interest Rate Rises Aren’t Working

Australia has an inflation problem that repeated interest rate increases are failing to solve.

The Reserve Bank has increased interest rates five times this year – yet inflation continues to rise.

There’s mounting evidence the Federal Government’s excessive spending and poor economic management are making the problem worse, as rate rises inflict enormous financial pain on households and businesses.

Australia’s underlying inflation is higher than every other major advanced economy. Treasurer Jim Chalmers likes to blame international conflicts and higher oil prices, but other advanced economies are experiencing those same pressures without the same high levels of inflation.

Ordinary Australians are suffering. Roy Morgan research shows 1.75 million households – about a third of mortgage holders – are at risk of mortgage stress, with more than 1.26 million extremely at risk.

According to Finder, a quarter-percentage-point rate increase means households with an average mortgage are paying around $540 more per month than at the beginning of the year.

Higher mortgage costs are also placing pressure on landlords to increase rents, potentially contributing to the inflation the RBA is trying to defeat.

The Federal Government needs to stop pretending this is entirely someone else’s responsibility and substantially reduce unnecessary expenditure.

That doesn’t mean indiscriminately cutting essential services but making responsible decisions about priorities.

The RBA cannot be expected to defeat inflation while the government continues pumping money into an already struggling economy.