Why You Can Expect Another Two Rate Rises

Picture this.

You’re a sixteen year old getting ready to run a 400m race at school. You know it won’t be easy but it’s doable.

The gun goes off and by the time you reach the 200m mark you’re feeling really strong.

You’re thinking, “I’m gonna smoke this!”

And then as you come around the final bend and reach the 300m mark you begin to slow down. But you’re not worried because you’re feeling pretty good.

“I’ve got this!” you mutter.

And then with 50m to go…WHACK!

You can’t believe what’s happened!

You’re legs are full of lactic acid and your lungs feel like they’re about to burst.

Worst of all, no matter how hard you try, it feels like you’re spinning your wheels.

If only you were fitter, you wouldn’t feel like a failure.

Inflation is the same.

History shows that as we head into the final straight, complacency sets in because we think we’ve beaten it…” we’ve got this!”

And then we get belted with a nasty surprise…like this week’s inflation figures.

For the fourth consecutive month, inflation has ticked up and now it’s at 4% again.

And if anyone tries to tell you 4% is not a big deal, it is…

When inflation is pegged at 3%, our spending power halves every 13 years.

And when it creeps up to 4%, our spending power halves every 7-8 years.

This week, Treasurer Dr. Chalmers was at pains to point out this was a one-off. An anomaly.

Like hell it was. This has been building for years, not weeks or months.

Here’s why… it’s called ‘fiscal dominance’.

Put simply, fiscal dominance occurs when the impact of government spending is greater (more dominant) than the impact of rising interest rates.

Meaning, excessive government spending keeps inflation higher for longer despite any rate hikes.

And that’s exactly what happened this week.

Wednesday’s inflation figures were mostly a result of broad-based government spending – immigration, public infrastructure, growing demand for health services, housing shortages, and climate related increases to energy and insurance costs.

And now it’s about to get worse.

On July 1, tax cuts and energy bill relief will mean more spending power for voters.

If the government was serious about inflation it would do the exact opposite – reduce spending, increase taxes and make it an even race for everyone.

Instead the government will pass the buck on to borrowers which means we’ll get another 1-2 rate hikes.

Hiking rates to fix inflation is blatant discrimination because it only impacts a third of the population.

It’s an unfair race.

A third of the runners are being handicapped for a mess they didn’t create.

Have a great weekend!

Adam

Back paddock – a crocodile can run down a horse over 40m and a kangaroo can outrun a greyhound over 400m – David Attenborough.