The sad thing is the RBA has a mono brief. The politicians, eager to remove blame for interest rates and inflation as far from themselves as possible have given the RBA the sole brief of "controlling inflation". ie forget the industries which export, and employ people, and make things. Forget the level of the currency-which is now so high (its not a macho contest its a disaster) it penalises exporters and boosts importers. Forget whay they do to the economy and ordinary peoples lives, to the ASX, and the impact of that on superannuation savings. The RBOA's brief was put in place by a bunch of solicitors disguised as a political party. (The Liberals, but I dont hear the ALP disagreeing)
Australian interest rates are about three times the American and twice the European rates. So is the high rate stopping inflation? No.
The principal reason is that there are shortages of just about all fuels due to increased demand lack of investment over decades. There has been strong growth in food demand and supply disruptions caused by climatic factors. The worlds population is also growing by a billion every ten years now, but the planet isnt getting any bigger.
More buyers for less output mean prices are bid up. High interest rates in Australia are not going to stop Chinese and Indians etc. from wanting more food as their incomes rise gradually.
I am convinced the RBOA's brief is damaging and wrong. No doubt some who have studied economics will disagree. Fine. So did I . Im a "monetary" economist, too. Inflation targeting is becoming disastrous. Prices must rise to encourage more supply to be developed, especially infrastructure, where a lot of the bottlenecks lie.
