The latest inflation figures have everyone on edge, and the Reserve Bank of Australia (RBA) is poised to raise interest rates yet again. But here’s the thing: another rate hike isn’t going to fix inflation. What it will do is pile more pressure on households already reeling from soaring fuel costs. And that, in my opinion, is a deeply misguided approach.
Let’s take a step back and think about what’s really driving inflation right now. The March figures show a sharp jump, sure, but dig a little deeper, and you’ll see that the bulk of this increase is due to petrol prices. In fact, automotive fuel alone contributed a staggering 1 percentage point to the 1.1% monthly inflation rise. If you strip out petrol, inflation would’ve been a mere 0.1%. What this really suggests is that the RBA is about to punish households for a problem they didn’t create and can’t control.
What makes this particularly fascinating is how the RBA seems to be missing the forest for the trees. The surge in petrol prices was a one-off event tied to the Iran conflict and the closure of the Strait of Hormuz. Oil prices soared by 70%, but they’ve since stabilized, and in April, fuel prices actually dropped below pre-war levels. So, why is the RBA so eager to raise rates? It’s like trying to fix a flat tire by adjusting the steering wheel—it doesn’t address the root cause.
From my perspective, the RBA’s focus on headline inflation is misguided. They should be looking at core inflation, which strips out volatile items like fuel. That measure stayed flat at 3.3%, indicating that underlying price pressures aren’t spiraling out of control. What many people don’t realize is that domestic price growth is actually slowing. Non-tradable items, which are driven by local factors, saw their growth rate fall from 5.0% to 4.6%. Even discretionary spending is cooling off. This isn’t an economy running hot—it’s an economy adjusting to external shocks.
One thing that immediately stands out is the RBA’s apparent disregard for the human cost of their actions. Real wages are falling, and households are already stretched thin. Raising rates now won’t lower oil prices or fix global supply chains. Instead, it’ll make mortgages more expensive, reduce consumer spending, and potentially tip the economy into recession. Personally, I think the RBA is prioritizing the appearance of action over the reality of impact.
This raises a deeper question: Why are central banks so quick to tighten monetary policy when inflation is driven by external factors? It’s a pattern we’ve seen globally, from the U.S. to Europe. Central banks seem to be fighting the last war, using tools designed for demand-driven inflation to tackle supply-side shocks. What this really suggests is that our economic playbook is outdated. We need a more nuanced approach—one that recognizes the limits of monetary policy in addressing global crises.
A detail that I find especially interesting is how companies are likely to exploit this situation. Just as we saw after Russia’s invasion of Ukraine, businesses will use the conflict as cover to boost their profit margins. Higher fuel and fertilizer costs will eventually filter through to food prices, but don’t be surprised if companies tack on a little extra for themselves. This isn’t inflation—it’s profiteering. And the RBA’s rate hikes won’t stop it.
If you take a step back and think about it, the RBA’s decision to raise rates feels almost performative. It’s as if they’re more concerned with looking tough on inflation than with understanding its causes. But here’s the irony: by hitting households with higher rates, they risk creating the very recession they’re trying to avoid.
In my opinion, the RBA should hit pause and wait for more data. Next month’s wages figures will likely show that real wages are still falling, which means wage-price spirals aren’t a concern. Meanwhile, fuel prices are already retreating, and the flow-through effects of higher food costs are yet to materialize. Rushing into another rate hike now feels premature—and potentially harmful.
What this situation really highlights is the need for a broader conversation about economic policy. We can’t keep relying on monetary policy to fix every problem. Governments need to step up with targeted measures to ease the burden on households, whether that’s through fuel subsidies, wage support, or investment in renewable energy to reduce our dependence on volatile oil markets.
So, as we brace for another rate rise, let’s be clear: this isn’t a solution. It’s a bandaid on a bullet wound. The RBA needs to rethink its approach—not just for the sake of the economy, but for the millions of households who are already paying the price for forces beyond their control.
