Australians have been handed another interest rate rise, and another reason to question whether their government understands the role that it can play to help avoid further rate rises to address rising inflation.
asserted
it → hand → inflation
The Reserve Bank's decision to lift the cash rate by another 25 basis points to 4.85 per cent, the fifth increase this year, squeezes household budgets already battered by expensive groceries, power bills and petrol.
asserted
decision → lift → groceries
For businesses, higher financing costs arrive at the same time as customers have less to spend, a double whammy.
asserted
customers → arrive → less
A government elected promising relief is instead presiding over a renewed tightening of the financial screws.
asserted
government → elect → screws
If the Opposition were remotely united with ready-to-go frontbench talent, it's hard not to think that Labor would be in political trouble.
asserted
Labor → unite → trouble
Higher interest rates are a necessary evil when inflation remains stubbornly above target.
asserted
inflation → remain → target
Allowing price pressures to become entrenched imposes its own punishment, particularly on those least able to protect themselves.
asserted
pressures → allow → themselves
Yet necessity doesn't soften the blow of this latest rate rise: higher repayments forces households to cut spending, investment to stall and hiring to slow down.
asserted
hiring → soften → spending
Because rate changes work with a lag, the cumulative damage risks overshooting the mark.
asserted
damage → work → mark
My sense is that the RBA is less worried about bringing on a recession than it is about the long term consequences of entrenched high inflation.
asserted
it → bring → inflation
In January last year, Jim Chalmers declared the worst of the inflation challenge 'well and truly behind us'
asserted
Chalmers → declare → us
Anthony Albanese recently called interest rates a 'blunt instrument'.
asserted
Albanese → call → rates
He's right, but the observation raises an obvious question: what is he doing with the more targeted instruments at his disposal?
asserted
he → raise → disposal
The RBA can't rewrite the federal budget.
asserted
RBA → rewrite → budget
It can't trim Commonwealth programs, defer infrastructure projects or shelve spending commitments that have grown too expensive to justify.
asserted
that → trim → commitments
The government can do all of that.
asserted
government → do → that
The political difficulty is that ministers must put their names to the choices made.
asserted
ministers → put → choices
Leaving the adjustment to the RBA via the blunt instrument of monetary policy (raising rates) allows the government to stand beside struggling borrowers, lamenting their predicament and quietly egging on criticism of the RBA Governor doing what she has to do, chiefly because the government won't play its part in the fight against inflation.
asserted
government → leave → inflation
The governor delivers the bad news; the politicians deliver the sympathy.
asserted
politicians → deliver → sympathy
Jim Chalmers' explanation for falling house prices earlier today was more buck passing.
asserted
explanation → fall → prices
The Treasurer pointed to higher borrowing costs as the driver of the property downturn, which is undeniably true, but only to an extent.
asserted
which → point → extent
The government has also altered the tax treatment of property investments, via a broken election promise as it so happens.
Restricting negative gearing and trimming capital gains tax concessions inevitably changes investor returns, dampening demand for established housing, an outcome that was part of the policy's design in fact.
The Commonwealth Bank estimated the changes would leave prices roughly three per cent lower than they otherwise would have been.
asserted
they → alter → prices
While that doesn't reveal the exact split between monetary and fiscal drivers, it confirms that interest rates are an incomplete alibi.
asserted
rates → reveal → drivers
The real test is whether the government properly judged the combined impact when it drafted the policy.
asserted
it → judge → policy
Lower prices offer limited comfort to prospective buyers when borrowing capacity is shrinking and repayments are rising.
asserted
repayments → offer → buyers
For recent buyers, especially those who entered the market with thin deposits, the outcome is especially brutal: more expensive servicing of debt secured against an asset shrinking in value.
asserted
outcome → enter → value
Labor eagerly claimed credit when inflation softened.
asserted
inflation → claim → credit
In January last year, Chalmers declared the worst of the challenge 'well and truly behind us'.
asserted
Chalmers → declare → us
It was akin to George W Bush declaring victory during the Iraq war, years before it finally ended.
asserted
it → declare → war
Bullock, in contrast, repeatedly warned that bringing inflation sustainably under control would take time.
asserted
bringing → warn → time
That history makes it much harder to cast the central bank as the villain today.
asserted
it → make → villain
While Canberra can't control overseas supply shocks or dictate world oil prices, it does control the budget choices that can ease or amplify the burden.
asserted
that → control → burden
The Aporia
