Independent economist Warren Hogan warns today that the Reserve Bank’s “only option” is to raise interest rates.
The Australian Bureau of Statistics reported on Wednesday that April inflation rose to 3.6%, over predictions of 3.4%.
The RBA prefers to base interest rate decisions on core inflation, which stayed at 4.1%, considerably above the two to three percent objective.
Mr. Hogan told Sky News Australia that forthcoming tax relief and new government expenditure promises could put pressure on the RBA, notwithstanding Treasurer Jim Chalmers’ claims that the budget will cut inflation.
In my view, the budget is both helping and hindering inflation.
Tax cuts are modestly and indirectly inflationary, while boosted energy and rent subsidies are very directly deflationary.
The balance is probably more dovish than hawkish.
However, there is one excellent reason why the RBA should hike interest rates.
As MB has exhaustively chronicled over the past two years, unlike most of the world, Australia’s sticky inflation problem is homegrown by the Albanese Government.
If we had sensible policies to rein in the gas cartel during the Ukraine War and sensible policies to manage the post-COVID immigration surge, Australia would have roughly 30-40% lower inflation today.
Albo and the Chook have only one solution for every problem: spend more of your money on a band-aid.
The inflation problem in Australia is the Albanese Government, and anything the RBA can do to help remove it is welcome.
