“…there are “unavoidable” inflationary pressures in the economy.”

From the papers.

Prime Minister John Howard has effectively conceded an interest rate rise is inevitable this week, saying there are “unavoidable” inflationary pressures in the economy.

The Reserve Bank of Australia is widely tipped to raise official interest rates to 6.75 per cent on Wednesday – the sixth consecutive rise since the 2004 federal election when Mr Howard vowed to keep rates at record lows.

While Treasurer Peter Costello believes “consumers’ inflation” is well behaved at an annual rate of 1.9 per cent, the RBA’s favoured measure of underlying inflation show prices rising to the top of its 2-3 per cent inflation target band.

I’ll leave aside discussion of what a demonstrable tit each such act of central bank responsibility makes the chairman of the Federal Reserve, here. What is more important is

  1. We really did not need the Prime Minister to accept an(other, and the 6th) increase in interest rates
  2. The Prime Minister has nothing to do with it. Raising a white flag? He’s not even supposed to be in the battle.

To the extent that he had a saving grace:

Mr Howard did not go as far to say that interest rates would go up on Wednesday, the day after the RBA board meeting.

“That’s a matter for the Reserve Bank,” Mr Howard said.

We tie government/politics to central bank activities entirely too much, these days, and we do so at our peril.

This one, finally, was great:

Deputy Prime Minister Mark Vaile said the Government was doing all it could to offset the drought, which has forced food prices higher.

“The best thing we can do is to share some of the prosperity generated in Australia,” Mr Vaile told the Ten Network.

“We have done that year on year on year with tax cuts and we have done it again with our commitment during the course of this election campaign with $34 billion worth of tax cuts to try and help middle to lower income earners to deal with those cost pressures.”

The finance minister is insisting that putting AUD34bn into peoples’ pockets is not inflationary. He even says plenty of economists agree with him. I’ve studied and taught Economics (and studied alongside others who’ve graduated with Economics degrees). I’ve seen what it takes to earn a mere Bachelor’s degree in Economics and – feasibly – label one’s self thereas, thereafter. I can tell you: it isn’t much.

Until the finance minister lines those men and women up in front of us, so they can tell us (a) how qualified they actually are, and (b) what other crazy shit they believe, I’ll just continue to assume they’re not a club to which it is in my interests to belong. In the meantime, the Reserve Bank has not choice but to increase interest rates. With both parties effectively promising demand-pull inflation in their electioneering attempts to ameliorate cost-push inflation, there is no other option (“core” inflation notwithstanding).


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