Peter Dewar

INFLATION, INTEREST RATES AND A LITTLE MISSING HISTORICAL CONTEXT. In today's ABC report (video below), the presenter makes a point of highlighting that Australia's CASH RATE is now 4.60%, THE HIGHEST SINCE 2011. That's entirely correct. FOR CLARITY, nothing the ABC said was incorrect. What they didn't do was add context. There's some important historical context that rarely makes it into these reports. FIRST, WHO ACTUALLY SETS THE CASH RATE? The Reserve Bank of Australia (RBA). NOT the Albanese government. NOT Jim Chalmers. The RBA makes monetary policy decisions independently of the government of the day. Now, let's look at some rather interesting figures. APRIL 2022, MORRISON/FRYDENBERG: Inflation, as subsequently reported for the March quarter: 5.1% RBA cash rate: 0.10% The RBA had maintained that extraordinarily low rate despite inflation accelerating well beyond its 2–3% target. It finally increased rates in MAY 2022, shortly before the federal election. By the June quarter, annual inflation had reached 6.1%. OCTOBER 2026 — ALBANESE/CHALMERS: Annual inflation: 4.3% RBA cash rate: 4.60% READ THAT AGAIN. Inflation is approximately 29.5% LOWER than the 6.1% recorded around the time Labor took office. Yet the cash rate is now the highest since 2011. And who independently made those interest rate decisions? THE RESERVE BANK OF AUSTRALIA. Now, here's another interesting piece of history. Former RBA Governor Philip Lowe acknowledged in September 2023 that, with hindsight, the Reserve Bank had provided TOO MUCH economic support during the pandemic. The RBA had kept interest rates at emergency lows, and its earlier forecasts had underestimated the subsequent inflation surge. In other words, today's interest rate history didn't magically begin when Anthony Albanese walked into the Lodge. The RBA's earlier decisions, pandemic-era stimulus, inflationary pressures and the subsequent tightening cycle ALL form part of that history. Of course government fiscal policy can influence inflation. Nobody is suggesting otherwise. But INFLATION and the CASH RATE are not interchangeable measurements, and governments do not directly set the latter. So, when we're told that today's cash rate is the highest since 2011, that's a perfectly valid fact. What's missing is the equally important historical perspective explaining HOW WE GOT HERE, WHO MADE THE DECISIONS, AND WHEN. The ABC report provides today's numbers. We've supplied some of the history. CONTEXT MATTERS. ESPECIALLY WHEN DISCUSSING THE ECONOMY. Sources: RBA historical cash rate decisions; ABS Consumer Price Index; Philip Lowe's final speech as RBA Governor, 7 September 2023. ABC clip WITH CONTEXT below.