On Friday night, I gave an interview (video below) with Sky News’ Erin Molan where I hammered the Albanese Government for deferring all responsibility for managing inflation to the RBA.
This abrogation of duty has left the RBA with no choice but to smash the roughly one third of Australians with mortgages into oblivion, without addressing the fundamental causes of Australia’s inflation.
I argued that the Albanese Government should instead target inflation directly by moderating immigration to take pressure off the rental market, since rents are the single largest contributor to the Consumer Price Index (CPI).
Lower immigration would also ensure that the supply side of the economy – namely business investment, infrastructure investment and housing – can keep pace with population growth.
In turn, productivity growth would improve and inflationary pressures would ease.
The Albanese Government must also intervene directly in the east coast gas market to decouple domestic gas prices from the international market, which has been adversely affected by the war in Ukraine.
East coast Australian consumers are currently paying the world’s highest gas prices due to our government’s refusal to adopt a domestic gas reservation scheme, despite Australia being the world’s largest exporter of LNG (effectively “the Saudi Arabia of gas”).
Electricity rates along the East Coast will climb by at least 25% on July 1st, which follows similar increase in the previous year.
This is because gas is the primary price setter for electricity.
The direct impact on the CPI from energy price inflation over the year is estimated to be 1.8%.
However, because energy costs feed into almost everything else, the inflation spill overs will be much higher because the costs will be passed on.
The cost of energy has the potential to raise the CPI by 3.5%.
The answers to Australia’s inflation problem rests with the Albanese Government, not the RBA.
It must moderate immigration and fix the energy market.
Otherwise, the one-third of Australians with mortgages will continue to be unfairly brutalised, while the underlying causes of inflation will go unaddressed.
