William Mitchell — RBA interest rate rises are inflationary and neoliberal privatisations have reinforced that

While the details of the post are specific to Australia, the MMT point is general, namely, that raising the price of "money" by increasing the interest rate adds an increased inflationary bias to already increasing inflation as the price increase of "money" is passed on to goods and services owing to increased costs and also monopoly power.

The thinking behind this is apparently that increasing the price of "money" makes not only goods and services more costly but also the cost of borrowing across the board, thereby reducing investment, which is the driver of growth in the conventional theory. So the idea apparently is that the antidote is inflation expectations is increasing prices to the point at which demand is reduced, forcing layoffs. The thinking here is that in the chief driver of inflation is labor power as full employment is approached. So the remedy is to reduce consumption and investment-based demand to lower demand for workers by inducing economic constriction through increased prices based on interest rate-based cost increase across the board.

So it may not be a lack of awareness that the increase in interest rate is a price increase that adds to inflationary pressure. It may be part of the plan. Lacking a theory of inflation, as Janet Yellin admitted, it is difficult to tell what the central bank's thinking is in detail other than generalities.

William Mitchell — Modern Monetary Theory
RBA interest rate rises are inflationary and neoliberal privatisations have reinforced that
Bill Mitchell |rofessor in Economics and Director of the Centre of Full Employment and Equity (CofFEE), at University of Newcastle, NSW, Australia