RBA signals rate rise threat as frustration builds
The RBA deputy governor admitted Australians are furious about inflation — but stopped short of saying what's actually keeping it elevated.
Andrew Hauser has heard the anger, and he is not pretending otherwise. Australia's RBA deputy governor told 7.30 this week that "people are furious about inflation," acknowledged it is the central bank's "one big problem," and left the door clearly open to another rate rise before the year is out. It was, by the standards of central bank communication, unusually candid. What it was not, quite, was complete.
The "three-headed monster" conveniently has no political head
Hauser's framing of inflation as a "three-headed monster" — geopolitical instability in the Middle East, a global AI-driven boom, and weak domestic supply — is not wrong, exactly. Those forces are real. But it is a list that notably omits the one variable the government can actually control: what it spends. A dollar of government demand pulls on prices harder than a dollar from anywhere else. Hauser acknowledged as much, but not quite, when he said the RBA treats "a dollar of demand, whether it comes from the government or it comes from the private sector" as having the same inflationary effect. He just declined to draw the obvious conclusion from his own premise.
Australia's inflation has been slower to come down than in comparable economies. The UK, Canada, and the United States have all made faster progress. The RBA's own projection has inflation returning to target by early 2028, which means Australians are being asked to live with the cost-of-living squeeze for another year and a half, minimum. That timeline is not just a function of global forces. It is partly a function of domestic fiscal settings.
Mortgage-holders are subsidising the gap between what government spends and what the economy can absorb
The mechanism is not complicated. When a government runs a large deficit, it injects demand into the economy. The RBA then has to work harder with interest rates to bring that demand back into balance with supply. Every extra dollar of public spending that is not matched by genuine productivity gain is a dollar the central bank has to fight with a rate rise, and every rate rise is a dollar out of a mortgage-holder's pocket. Households sitting on variable-rate loans are effectively subsidising the gap between what the government spends and what the economy can absorb. That is a real transfer, and it is one that falls disproportionately on people who borrowed in good faith during a period of record-low rates.
Households sitting on variable-rate loans are effectively subsidising the gap between what the government spends and what the economy can absorb.
The four major banks are all forecasting a 0.25 percentage point rise by year's end, which would take the cash rate to 4.6 per cent. The RBA board meets at the end of September, though the next inflation print won't land until a day after that decision, which is its own kind of institutional absurdity. As we've written before, the RBA's rate decisions have never been mechanically tied to a single inflation threshold — context, judgment, and timing all play a role. But what is consistent is that every round of rate rises requires someone to bear the cost, and the question of who designed the conditions that made those rises necessary is rarely put to the people who should answer it.
"We take government policy as given" is accurate — but it is not the whole truth
Hauser's honesty about public fury is to his credit. But candour about the symptom is not the same as candour about the cause. When he was asked directly about the role of government spending, he retreated into the formulation that the RBA "takes government policy as given." That is technically accurate, and institutionally appropriate. The RBA is not a political actor and should not position itself as one. But acknowledging fiscal settings as a contributing cause of inflation is not the same as telling the government what to do. It is simply telling the public the truth about what is driving their pain.
This matters because the framing shapes the public response. If Australians believe inflation is entirely a product of Middle Eastern crises and AI booms, they will demand that the RBA solve it — and when the RBA raises rates, they will direct their frustration back at the central bank, not at the budget decisions that forced its hand. That is a politically convenient loop for anyone running a deficit. Understanding that higher rates are the mechanism for reducing inflation is already poorly understood by most Australians. Leaving the fiscal dimension out of the public explanation makes that confusion worse.
The people at the supermarket comparing today's prices to three years ago are not wrong to be angry. They are just, understandably, uncertain about where to aim it. The RBA can slow the damage. It cannot fix what keeps causing it.
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Frequently Asked Questions
Why is Australian inflation falling slower than in other countries?
Australia's inflation is returning to target later than in the UK, Canada, and the United States — with the RBA not projecting a return to its target band until early 2028. Domestic fiscal settings, including government spending that injects demand into the economy, are part of the reason the RBA has had to work harder with rates than its peers.
What does government spending have to do with interest rates?
When the government runs a deficit, it adds demand to the economy. The RBA must then raise interest rates to pull that demand back into balance with supply — meaning every dollar of deficit spending that outpaces productivity growth effectively forces a rate rise that mortgage-holders pay for.
Will the RBA raise rates again in 2024?
All four major Australian banks are forecasting a 0.25 percentage point rise by year's end, which would lift the cash rate to 4.6 per cent. The RBA deputy governor has left the door openly open to a further rise, and the board meets at the end of September.
Why doesn't the RBA just blame the government for inflation?
The RBA operates under a convention that it 'takes government policy as given' — it is not a political actor and is institutionally constrained from directing criticism at fiscal decisions. But acknowledging that government spending contributes to inflation is not the same as telling the government what to do; it is a factual statement the RBA has so far declined to make plainly in public.
Who is actually responsible for Australia's cost-of-living crisis?
Responsibility is shared, but not equally distributed in the public conversation. Global forces — geopolitical instability and an AI-driven investment boom — are real contributors. But domestic fiscal policy amplifies those pressures, and the RBA's monetary tightening is the mechanism that corrects them — at the direct cost of households on variable-rate mortgages.