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TRANSCRIPT:
WOMAN 1: “I'm going to do my grocery shopping now, and, yeah, I've got to watch every penny. I'm not in the market at the moment, and I'm probably won't be entering it for a long time."
WOMAN 2: "I believe in the future, our kids can't buy a house. It's going to be like a rental system, even if it's buying all their life they're going to pay it. They're not going to have life. Even if I'm working, they're saying, 125 or $160,000, how are you gonna repay the loan?"
These women are responding to the interest rate rise announced by the independent Reserve Bank of Australia, bringing the cash rate up from 3.6 per cent to 3.85 per cent.
It's the first rate rise in over two years, making the RBA the second advanced economy central bank - behind Japan - to begin a new rate-rising cycle.
Despite concerns that public spending fuelled inflation and crowded out the private sector, Treasurer Jim Chalmers said in a noisy session in parliament the Reserve Bank’s report identifies private demand - not government spending - as the primary driver of inflation.
"It makes it very clear that the pressure on inflation is coming from private demand. Let me make this really clear. This is the Reserve Bank board in their statement just released. Mr Speaker, growth in private demand has strengthened substantially more than expected. Mr Speaker, this is the point that the Reserve Bank has made today."
Dr Chalmers says criticism of government spending and its role in driving up inflation is motivated by politics and not facts.
While acknowledging that interest rates have risen further than the government hoped, Dr Chalmers is emphasising the urgent need to address inflation and productivity reform as global economic uncertainty intensifies.
Because the Reserve Bank raises rates specifically to curb inflation, the Treasurer took to ABC’s Radio National Breakfast to defend the budget.
Acknowledging the cost of living pressure Australians are facing, Dr Chalmers says the government is enacting policies to help ease daily pressures.
"Well, first of all, more than acknowledge that people are still under pressure, we're acting on that. Cheaper medicines, which came out last month, more bulk billing, student debt relief, three tax cuts: that's all about acknowledging and acting on the very real pressures that people are feeling in our community and around our country."
Despite the Reserve Bank statement , Opposition leader Sussan Ley insists government spending is responsible for the inflation problem.
"Australians are struggling even more with the cost of living crisis. This is Labor's cost of living crisis. When labor spends, prices rise and Australians pay. And I've been speaking to a lot of mums, and I know my colleagues have and as they look at the expenses of going back to school last week and this week, and they're staring straight down the barrel of possibly more interest rate rises."
Meanwhile the Leader of the Greens party, Larissa Waters, blames Australia's speculative housing market for the inflation problem.
"We know the reason the housing market is overheated is the policies of this government to prop up property investment and to give billions of dollars to property investors, rather than helping first home owners and renters. Those are the policy settings that the government should have fixed. But instead, the government is delivering for the big banks, just like they deliver for their big corporate mates all the time."
Dr Tim Thornton, the director of the school of political economy, says the level of government spending as a percentage of GDP is not particularly large in Australia by OECD standards.
He says raising interest rates is not the only lever available to rein in inflation.
"Well, there are actually a range of other tools that can be used to manage inflation, beyond simply lifting interest rates. Most but not all of these would be the responsibility of the government rather than the Reserve Bank of Australia. These tools include price controls, credit controls, rationing, establishing buffer stocks, and also what are called income policies, which are political agreements between different stakeholders in society. Now it's currently the intellectual fashion to vehemently dismiss these other tools as being somehow outdated or even discredited. I think this is quite the mistake, as all of these tools have been used successfully in Australia in the past, and at least some of these could be used again and in the future."
Meanwhile Dr Andrew Grant, Associate Professor of Finance at the University of Sydney, warns there could be more rises.
"Typically, when the Reserve Bank increases rates, they don't typically stop at one increase. Historically, it's sort of been a sign that they might be two or three in a row. We typically have seen that there's a bit of momentum in these things. So I wouldn't be surprised at all if, you know, we get another rate increase before the end of the year, or even before half be the end of the financial year, especially if this sort of struggles to put a brake on inflation. So that's what I will expect to see."
