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another interest rate hike folks « Previous | |Next »
October 26, 2006

It would appear that the Australian economy still has inflationary pressures and capacity constraints. Both core and headline inflation continue to increase. As the market speak puts it 'expectations for a rise in interest rates have hardened.' For economists it is now almost certain that the Reserve Bank of Australia (RBA) will continue with its tightening bias and increase interest rates next month by 0.25 percentage point, with a possibility of further increases early next year. The RBA is twitchy because the economy' s running close to capacity, and its econcrats have been banging this drum for over a year.

The RBA responds to growing inflation pressure by raising interest rates because the higher rates would dampen demand. What causes inflation is too much spending relative to production and so higher interest rates bring the two back into line.

The rate increase will hit swinging voters in Australia's mortgage belt who are already paying more to service their mortgages than the bad old days of 17% interest rates under Paul Keating. Inflationary pressures in the economy will restrain the extent to which the Howard government can use its budget surplus to spend up on election handouts. The Government's tax cuts fuel consumer demand whilst the RBA uses monetary policy to suppress demand.

The Federal Government have been always telling us what terrific economic managers they are, whilst doing too little about education and training to address the skill shortages.They've mostly spent their time trying to shift the blame to states (with some justification), rather than accept that its also their responsibility for fixing the problem.

These are not the actions of terrific economic managers are they?

| Posted by Gary Sauer-Thompson at 6:14 PM | | Comments (2)


They continue to lie their guts out; aided and abetted by the press and media including the abc, as to ACTUAL unemployment. The papers last week observed a return to welfare-bashing, but this was obscured by the sensationalist dog -whistling over muslims.

it's not all bad. There was the Australian Fair Pay Commission decision last week to increase the minimum wage earners an extra $27 a week.