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Rising Interest Rates can't control inflation

Discussion in 'Real Estate' started by Billv, 11th May, 2008.

  1. Billv

    Billv Getting there

    Joined:
    15th Jul, 2007
    Posts:
    1,796
    Location:
    Sydney, NSW
    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
     
  2. AsxBroker

    AsxBroker Well-Known Member

    Joined:
    8th Sep, 2007
    Posts:
    1,448
    Location:
    Sydney, NSW
    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
     
  3. Billv

    Billv Getting there

    Joined:
    15th Jul, 2007
    Posts:
    1,796
    Location:
    Sydney, NSW
    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