The cost of living is surging, so why will the RBA add to it by raising interest rates?

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The Reserve Bank is increasingly likely to start raising interest rates next Tuesday. But why would it add increased interest costs to household budgets at a time when Australians are struggling with a surging cost of living? Michael Janda explains the economics behind it.

In turn, that means businesses will face even higher costs and, if demand is strong for their products, they will be able to pass those costs on to their customers through higher prices still.At extreme levels, this is very destabilising for an economy.

Inflation has never been that high in Australia, but it was much higher in the 1970s and 80s than it has been since, and those levels of price rises were seen to be hurting economic growth.That's why in the early 1990s the Reserve Bank joined other major central banks in setting a specific inflation target — interestingly, a trend started by the Reserve Bank of New Zealand.

One reason to act immediately is the "stitch in time saves nine" argument, i.e. if you address a problem now it stops it getting worse and the solution being more painful, like a higher peak in interest rates if the RBA delays too long.

 

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RBA is made up of a bunch of out of touch bureaucrats. What we need is policy changes to stop home prices growth and fixing supply chain issues to bring commodity prices down.

Simple the the rich have to take more from the poor they lend the money to in order to get richer. Rate Rises transfer the money from poor to rich automatically.

Getting to more normal interest rates is hardly even news. Global debt, supply constraints and expectations of never ending growth are the main factors.

They'll have no problem cranking them up sharply if Labor win the election. Its a pretty bad situation when your financial regulator is blatantly politically biased.

Another way to reduce excessive spending is to tax the rich. The poor can’t earn enough to pay for necessities making them starve isn’t the right answer.

Cat out of bag ABC. Billionaires & Wall Street want historically low interest rates. It is actually better for the working classes who ABC used to represent to have balanced interest rates. Tried buying a house lately or rental? Low interest rates directly create wealth gaps.

A single rate rise to discourage housing prices. BUT RBA is right that we need to wait to see wages rise for everyone at the lower end of society before we go nuts with rate rises. Price rises are mostly due to disasters and war. Let it settle and see real inflation.

I didn’t even read the article. If you don’t understand the use of monetary policy to control inflation, you need to educate yourself. I am not suprised the ABC need to explain this though - explains the labour bias of its viewers.

ABC needs basic Econ 101 lectures

Best way to clean up the small business and redirect the funds to the big corps.

What are other central banks are doing? Who cares. Australia’s economy is not the same as the US, UK, NZ or Europe. Please Reserve Bank, base your decision on Australia’s needs, not those of economies overseas.

Time for folks to have a little veggie garden,it's so easy guys.

And to think it was 18% 25 years ago.

Because it curbs demand prices rise when demand is high get rid of demand prices fall that’s the simple view of how it should work. Will it unlikely. Supply of almost everything has been affected by Covid globally supply chains are stuffed etc. it’s not back to normal !!!

because low interest rates is exactly the reason why cost of living is surging. duh.

I'm an aged pensioner, wife works part time looking for work, no other income and wife's income comes off my pension, I've saved more in the 5 years since retirement than I did while I was working. It's all in how you plan finances

It's not rocket science. The plandemic response was designed to specifically ruin the global economy and force us into an economic reset. Hard times ahead over the next few years. Better get rid of as much debt as you can right now as rates need to rise

The RBA are guilty of not making decisions earlier. Lowe is a bit slow off the mark.

Inflation.

Perhaps study a little economics and stop scaremongering?

Offs. Get an economist to explain it🙄

because of the IMF report

ask keynes

Make them pay for signing up for GREEDY things. Let the consumer BEWARE.

Duh

Look you are a celebrity RBASHAGGER

Clown 🤡 show

Price of living is surging because moneys becoming worthless,in order to get a hold on it they need to raise interest rates otherwise youl be paying with a wheelbarrow of money for a loaf of bread,yous have the brain of an 8 year old child,i dont see them doing it before election

Cost of living raising because of the war, petrol prices are up so everything will go up! Politicians are spending tax payers money, and giving our tax money to Ukraine

I’m horny for higher interest rates

What NO ONE is talking about is productivity... Government's responsibility. Businesses are not getting the productivity they need to meet demand; driving up inflation. There are some real structural and cultural changes within the labour market (globally and locally) too.

When one has math a little confused and thinks that adding is subtracting a little

RBA should have be raising rates long ago. They have fueled the flames of house prices and now mortgage holders about to be burnt.

Basic economics. Increase interest rates to cut demand. Reduced demand should lead to price decreases

Because we need a recession to break the cycle of higher rents / wages - higher prices.

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