Rising Interest Rates can't control inflation

From the article: "The authorities' response to rising inflation is quite wrong-headed.
Their efforts to slow demand will hurt employment without reducing inflation."

So did the RBA get it all wrong and should instead be dropping interest rates
as they are doing in the US & EU?

More here

Cut demand and inflation will ease | smh.com.au

 

Hi BV,

It's a bit of a confusing article.

The RBA is trying to reduce demand by increasing interest rates.

Increasing interest rates will slow discretionary spending.

In the US, the Fed Reserve is trying to stimulate the economy by having low interest rates (to encourage spending). Here, in Australia the RBA is trying to slow peoples spending by increasing interest rates.

If the RBA drops rates, people will spend their money (or buy on credit). When it's more expensive to purchase goods (and services) people tighten the purse strings (which is what the RBA want us to do) to decrease inflation.

Once again the media is beating up news to have a story.

Cheers,

Dan

 

Dan

There could be some truth in this.
If the inflation is indeed imported and affecting intl food prices and petrol prices there is nothing the RBA can do to stop it.

It seems to me that the cost of fuel is now out of control and this is a key factor pushing prices up.

Also the RBA moves to keep the lid on inflation are now having the opposite effect because there is now severe pressure on housing so rents are going up and then we will be asking for higher wages etc etc.

Cheers