Bill Mitchell — Australia–inflation rises but with no wage pressures evident there is no case for interest rate rises

The Tweets have started already demanding an interest rate rise in May at the next RBA Board meeting. Bankers, media commentators who just are conduits for the bankers – all with vested interests. Today’s data release from the Australian Bureau of Statistics – Consumer Price Index, Australia (April 27, 2022) – has fuelled their mania. Inflation in the March-quarter 2022 rose to 2.1 per cent (5.1 per cent for the 12 months) on the back of rising automotive fuel costs (uncompetitive cartel and deliberate government petrol tax policies), global supply chain disruptions (pandemic) and material shortages (supply chain and bushfires). As long as these influences are present, inflation will remain at elevated levels. But with wage pressures absent, it is hard to make a case that the rising inflation is now entrenched. Certainly, the long-term expectations measures would not suggest that. I cannot see why the RBA will hike rates in May. More evidence of wage pressures would be needed one suspects.…

There is no two-variable functional relationship between the interest rate and the inflation rate. Inflation has multiple causes, so a simple solution is, well, simplistic. Addressing the issue requires analyzing the causality involved. 

Bill Mitchell – billy blog
Australia – inflation rises but with no wage pressures evident there is no case for interest rate rises
Bill Mitchell | Professor in Economics and Director of the Centre of Full Employment and Equity (CofFEE), at University of Newcastle, NSW, Australia