Interest rates are the fundamentals to monetarism - Milton...

Interest rates are the fundamentals to monetarism - Milton Friedman's economic theory.

One thing to be aware is that most treasury economic models estimate any changes (ie interest rates) to the economy take up to 8 months to work their way through.

Inflation (or even worse stagflation) is a nightmare and with oil prices at $135 ish inflation is going to rise - because of not only fuel but the other things requiring oil - eg rubber, plastics.

Rising inflation will lead to increased interest rates and increased interest rates will make the OZ $ appreciate - making oil cheaper to us - however the converse is also true - in the US inflation numbers are being released today and Bernanke has given inidcation that rate cuts are done and that hikes may happen - this has led to the US $ becoming stronger - which means our oil costs will rise - so inlfation, interest rates and exchange rates are all linked inextricably - and so a fine tune balancing act is required. the RBA have a tough job to do but I believe if US inflation is up on today's figures, ou inflation will rise too and more interest rate rises will be seen....

In a word - get used to interest rate hikes they are here to stay and will expose weaker companies and business models